To, Say, $500 Have A Positive Effect On My Credit Rating?
Q: I have a few questions that I hope someone can answer. 1) Will these account closures reflect positively or negatively on my credit record? I know that if the credit card company had closed them due to a problem with me, that would definitely be negative for my credit. But is there a positive effect of closing a line of credit? Do credit card companies report this to credit bureaus? 2) On some accounts I merely want to scale back the size of my credit line. For example, at one department store I think I have a $4000 line of credit. That's an amount I'll never, ever use. Will asking the department store to reduce this to, say, $500 have a positive effect on my credit rating? 3) Does anything "shifty" ever happen when you close accounts? Should I obtain some sort of statement from the credit card company in writing stating that I've closed the account? Should I be wary for any other ill will on the part of the credit companies who have lost my business?
A: -You are sure of this? While debt to income is certainly important, my understanding is that credit limits are also important. The theory is that if you have $50,000 worth of credit but have only charged say $3,000, you could one day max out all your credit cards and disappear, so that you are a bit more of a risk that the person who has charged $3000, has the same income, but has only $5,000 total available credit. -At least on some scoring methods, this will hurt your rating directly. One of the negative factors on my Trans Union report (using TU's own scoring system) is "not enough retail credit experience", which it explains as low credit limits on these accounts. It may also reduce your rating indirectly because of the utilization issue. If you have $10,000 of available credit and $2500 in balance owed, reducing the $10,000 to $5000 will increase the amount of credit in use from 25% to 50%, which will lower your rating. -An unused open account can count negitivly, Its credit that could be used in moment and therefore change your debt ratio. Your going to be hard pressed to get any company to scale back your credit limit. its of no advantage to them, they want your debt and interest. I would cancel every dept store account I had an stick with a visa/mc cards only. Maybe discovery if you use it enough. If your not going to be buying home in the near future its not going to be a big deal, but its good to get rid of what your not using it. Stick with a minimal number of cards.