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You Can’t Have Too Much Available Credit

This article was written by in Credit. 12 comments.

You’ve probably been concerned at one time or another with your credit worthiness: the somewhat squishy way that lenders determine whether you’re going to repay, for example, a home loan. I say “squishy” because ultimately, these decisions are made by human beings in a temporal landscape. We bought our house in June 2007, and if we had tried just one month later, when rules were stricter, it likely wouldn’t have happened.

Nobody is allowed to know the exact algorithm that produces your credit score, but even if we had access, it probably wouldn’t be the same from month to month.

One thing that we thought we knew was that if you have too many open accounts, it can hurt your credit score. Now, a product support manager for Fair Isaac Corp. (where the term “FICO” comes from) is answering questions at BankRate.com, and in part of the answer to the first question, he replies:

It’s just not true that you can have too much available credit. That by itself is never a negative with the score … There really is never any good reason to close an account.

You’ll probably want to read the rest of the article to get all the specifics, and see what else he says on what does and doesn’t hurt your credit score.

Published or updated March 29, 2008. If you enjoyed this article, subscribe to the RSS feed or receive daily emails. Follow @ConsumerismComm on Twitter and visit our Facebook page for more updates.

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About the author

Smithee formerly lived primarily on credit cards and the good will of his friends. He is a newbie to personal finance but quickly learning from his past mistakes. You can follow him on Twitter, where his user name is @SmitheeConsumer. View all articles by .

{ 6 comments… read them below or add one }

avatar Ryan S.

Hm. So… does this mean your opinion is if I have credit cards with zero balances it’s way better to keep them open even if they go unused for years? I’m not contesting it, I’m just wondering and doing a little research since I have a couple like that.

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avatar MillionDollarJourney

As far as I understand though, available credit can hurt your chances of getting a mortgage as the banks take that factor into account. That’s what it’s like in Canada anyways. :)

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avatar J.C.

@Ryan S. – One major part of the FICO score is debt to credit ratio, so if you have any debt, closing the credit cards out will actually hurt your score.

So in general it is best to just leave those accounts open until the lender possibly closes the account for inactivity.

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avatar Steve R

That manager only confused me more. First he says you don’t lose the history of the card when you close an account, but then later he says the history is erased ten years after closing the account. Then he says it diesn’t matter if your credit cards are bank cards or department store cards, but then he says it does.

One question I would have asked: how much does my credit score change immediately after I pay off my credit cards? Suppose I have 10k in available credit, and I charge about $2500 a month. The day I pay my credit card, my used balance goes from 25% to 0%. Could that significantly improve my score? If I am applying for a mortgage, should I start using cash-only for the few weeks before I apply?

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avatar Lisa

Opening a credit card also lowers your score. The theory is the more cards you have, the more of a chance you have of being delinquent on a payment.

So irritating!


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avatar Stephanie PTY

@MillionDollarJourney -

I’ve heard that as well. When you go for a mortgage or any big loan, they’re going to look at more than just your score, so it’s entirely conceivable that they might feel uneasy if you have a ton of available credit that you could run out and max out at any point.

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