I have heard in the past, from various sources, that Capital One credit cards are notorious for dropping atomic bombs on one’s credit rating. If I understand correctly, they do this by reporting the balance kept on the card while not reporting the actual maximum credit limit, causing your credit report to appear as though you’ve maxed out the card. My question regarding this is twofold: 1) is this true, and is it universal among all Capital One cards, and 2) if one pays off the card in full every month, does that affect this situation?
I have established myself, over the past three years, as officially Good At Credit Cards; I have two, I buy gas once a month with each of them, and I pay them off as soon as the charges appear. I figure the more cards I do this with, the more it will improve my credit rating (if I’m wrong about this, please fight my ignorance) , and I keep getting card offers from the notorious CO…but I don’t want to indulge them if it’s going to hurt me in the end.
A third question on a similar topic: what, generally speaking, results from having multiple credit cards that one simply never uses? I seem to recall hearing that this aversely affects one’s credit, as potential lenders get nervous that you’re gearing up to go hog-wild and max everything out at once, but that might’ve just been idle speculation, as I can’t remember where I heard it.
So, if somebody could give me the Straight Dope on the ins and outs of credit cards and ratings, I’d greatly appreciate it. Thanks!
Well, looking at my own credit report, Cap One reports the current balance and most owed. My other credit card lists current balance, most owed and credit limit. How much that affects my credit score I have no idea.
The common wisdom is that this’ll hurt you, but we’ve never, ever gotten a real authoritive answer. I, for example, have way more credit cards than I could ever need (unless I choose to flee the country in a hurry!). I regularly use one or two, and of those I pay the one off every single month (the second, “big purchase” card is currently clean). The net result? I can pretty much secure credit anywhere I want to at perfectly acceptable rates. In my case, the unused, opened, unsecured lines of credit don’t hurt or don’t hurt enough to make a difference.
Some conjectures: they have no idea how much money I make, so they don’t realize that all of my available credit is probably a year’s salary, i.e., they probably think I make a lot more than I really do! Credit agencies only report credit accounts, so without knowing what your income is they can’t say whether the available credit is truly a risk or not.
Also I’d guess that the length of your credit history meshed with your current and recent payment statuses say a lot more about you than the opened accounts that you have. My credit history is long, and all of the stupid, young-person stuff has dropped off my reports many, many years ago. So despite having so much available, my “record” helps my record.
Bank managers may want you to close accounts if you want a mortgage and you’re very close to their ratio guidelines, but that’s not really a reflection of your credit score; that’s a single bank wanting to ensure that you don’t get overextended. Remember that for a mortgage, they generally do know your income to debt ratio!
Scoring models do look to see if the credit limit was exceeded at any point (max balance higher than limit?) and will ‘ding’ your score negatively if you exceeded the credit limit [total score impact depends on variety of factors, of course).
However, since some lenders omit the credit limit when they report their account data to the national credit reporting agencies, scoring model logic will not perform a max balance to credit limit comparison when the credit limit is not reported or listed as ‘0’.