Credit Cards

Does the number of cards you possess affect your credit rating negatively?

Partly. Potential creditors base their decisions on a “score”. They take into account your income, previous payment history, amount of debt owed to other creditors (debt-to-income ratio) and they also look at how much outstanding debt you are able to incur.

If you have 6 cards with $0 balance, they take into consideration that you could max them all out and not be able to afford the payments on their cards. This is why it’s important to cancel any accounts you don’t use. Call your local bank and ask this of a loan officer. You’ll be told the same thing.

Cancelling cards you don’t use may have a negative effect on your score, if the end result is that you are left with cards that you do use that have balances that are over half of their limits. I believe the number of cards is less important than the combined amount of available credit.

The FICO score likes to see a credit card balance-to-limit ratio of about 50% or less. If you have six cards with $1000 limits, three of them are maxed, and three of them you never use, you’re at that limit. If you cancel the three you never use, you’re suddenly at 100%, and you’ve just taken a hit on your score.

Another thing that affects your score is how long your accounts have been open, the longer the better. So, if you start cancelling cards, if everything else is equal, close the newer accounts. Of course, if your older cards have $500 limits and the newer cards have $5000 limits, you may want to keep the newer cards, in case you do actually need to use them in an emergency, or a mix of older and newer.