Credit Rating Question

you can get penalized by closing a card because it lowers you potential debt to earnings ratio or something like that but if you don't use the $500 dollar one very much I don't see a drawback to closing it unless you have had it for several years.

Honestly I'm not sure there's anything to worry over. Yes, closing an account by itself indirectly affects your score b/c it increases the percentage of credit you use.

To use your numbers suppose you typically have a monthly bill of $1000 that you pay off in full each month. Your credit utilization would be 1000 / 10500, or 9.5%.

If you close the $500 card, then this ratio goes to 10%.

But typically it doesn't matter until you cross a certain threshold like 20 or 30% or something like that. Even then the hit is minor.

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Wait you're not supposed to use your credit card frequently? I figured I'd get docked for NOT reaching my limit. I always assumed using as much of my limit as possible and proving I can pay it off would be the best way to increase my rating. Is that not true?

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From my experience and I think this is true: you never want to get close to your limit month to month. You want to stay in the 20-30% of the credit line.

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Wait you're not supposed to use your credit card frequently?

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A lender is going to pull your report once. They don't know about your credit card activity. They are only concerned with age, limit, balance and of course late payments.

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Interdasting. So with a $500 credit limit I was supposed to only spend like $100 a month? So dumb.

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No.

Not usage.

Credit.

You can use 2000 for the month but only have a utilization of 50 dollars by paying off your bill mid month.

credit card companies report a "snapshot" of credit utilization to the Big 3 every so often...so how much your balance is relative to your available credit will factor into your score

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Wait you're not supposed to use your credit card frequently? I figured I'd get docked for NOT reaching my limit. I always assumed using as much of my limit as possible and proving I can pay it off would be the best way to increase my rating. Is that not true?

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You want to use the cards at least sparingly, otherwise you chance the CC company just closing your account due to inactivity. You can charge as much as you want to the cards as long as you pay them off before the statement date so the CC won't report the large balance to the Credit Bureaus. Your score is a snapshot of your activity so even if you max out your cards this month, lowering your score dramatically (which it most definitely will) if you pay them off next month, your score will rebound to what it was before. I subscribed to MyFico ScoreWatch while I was building my house so that I could track my score. Having a zero balance on all my cards except one and less than 10% on that ONE gave me the highest score. If I let it get up to 20-30%, I lost about 20 points. When I maxed out my cards, I lost over 50 points. It's definitely a flawed system but one we have to deal with nonetheless.

Good stuff guys. I'll definitley have to sign-up for this MyFico thing. No wonder my credit rating never went up for the first couple years when I only had the $500 card, I was basically limiting it out each month and then when ever it got to its limit switching to my debit card. I thought this was me proving to them I needed a higher limit hahahaha.

Do yal know if your credit score only reflects US cards? I have a Singapore credit card a well, will that reflect on my credit score? They're unreal about limits there, think it's something like 15K so that'd def help if it's included!