This entry was posted on Saturday, March 1st, 2008 at 9:06 am and is filed under Credit Cards, Reader Questions. Both comments and pings are currently closed.
A reader asks:
What do you think of the recommendations near the end of this article, specifically about 1) not closing old accounts, and 2) what percentage of your credit limit to use?
http://www.cnn.com/2008/LIVING
/personal/02/22/financial .security/index.html
My research on these points seems to concur with the advice given in the article. Bankrate.com has an article on what factors affect your credit score posted here. According to the article and some research I have done on the impacts of credit card arbitrage, it would seem that 35% of your score is based on how you pay your bills, which your oldest credit accounts play a large roll in demonstrating. 30% of you credit score is based on credit utilization. My read is that you generally do not want to exceed 50% of your available credit on any of your accounts. So if you have a lot of outstanding debt, it’s easier on your credit report to spread it around to a number of cards so that no single card is over 50% utilized. Lastly, there is a 15% factor for length or credit history, which is another opportunity for your oldest cards to help you out quite a bit. You should be able to go ahead and close any shorter term credit lines that you have open and not suffer a credit hit.
One other point that I also made in the comments of Getting Out of Debt Part II is that banks will often let you consolidate lines of credit. So if you have 2 Chase credit cards, one with a 90% utilization and one with 0%, call Chase and ask them to transfer most or all of the line from the 0% card to the 90% card. This should, depending on how much credit you have, substantially reduce the utilization on the 90% card and improve your credit score.
General questions to readers: Do you check your credit reports annually? You can do so for free at AnnualCreditReport.com. When was the last time you checked your credit score? Are you looking for ways to improve you score? Are you about to take on a large debt like a mortgage or car loan?