I have two credit cards, each with ~$20,000 limit. One was only ever used when they offered to let me transfer the balance from another card for x months at 0% interest. The other gets used regularly. The one I used was maxed out for a while (the other one quit making that offer, so it got paid off and sat unused), but I have recently paid it off. I also owe ~$22k in student loans.
So now I have essentially $0 balance on $40k of credit limit (not counting student loans, but IDK how you measure the credit limit on that. It the amount that I initially owed relevant?).
Would I be better off canceling the one that I don’t use?
(Some threads from long ago implied that I should keep it so that my ratio is better.)
I once heard that the powers that be consider such things with regard to how much credit they’ll extend you. Imagine amassing 50 credit cards with $20K available on each. If you went nuts, you could charge $1M. Much as they’d love to you bleed you dry with the interest on that, they start to balk on issuing them if you really don’t have the income to justify it. It may come to your attention (I was told) when they determine how much they’ll loan you on a big purchase, like a house.
Credit score wise, you’re probably better off leaving the unused card open (as long as it doesn’t charge an annual fee), as your “credit utilization ratio” is a key factor in your credit score, and having $20,000 in credit that you don’t carry a balance against will make your ratio smaller (and thus, better).
But lobotomyboy63 is correct that for some situations, it could be detrimental. Mortgage loans, especially, will consider your ability to pay versus all of the credit you have available, and if you have too much available but unused credit, this might reduce the amount that underwriting will be comfortable offering you for a mortgage. I don’t think $20,000 will make much of a difference in this case unless your income is particularly low. It could make a difference if you had a large number of accounts like this, though.
OP here, with more info and more questions. (Hopefully the answers here will be useful to future dopers.)
I got my free credit report (which I should have done earlier, but my OP still stands.) My student loan debt is about 60% of the max, something like $22k out of $36k. A few years ago I went a long time without paying my student loans (back when my credit card was maxed out), so I have a lot of “180+” in red on my credit report. But the last one was nearly 2 years ago.
So, (Based on something that I read in an old thread about this being gone in 24 months) in a few months, I should be OK, right?
Since the student loan debt is all that I have, it seems like my ratio is something like $22k out of $76k, or 29%. If I were to drop that credit card, it would go to $22/56, or 39%. Or is student loan debt counted differently than credit card debt?
Another negative thing that showed up: Something is showing up under “Collections” as me owing $30, and the “Date of First Delinquency” is about a year and a half ago. Since it’s only $30, should I just contact the collection company and offer to pay it? Will this get it off my credit report forever? Or is the damage already done?
Keep them both open, for a few reasons. Right off the bat, if you have any kind of issue with one (maxed out during an emergency, lost/stolen, something wrong with the account so it’s locked), you still have the other. Having both of them makes your debt to available credit ratio better. With a 22k loan, your debt to available credit is 22/40 instead of 22/20 (certainly it’s more complex that that, but it’s a quick way of looking at it). It also keeps the average age of your credit accounts higher.
Lastly, just from personal experience, it’s worked well for me. About 10-15 years ago I got all my credit card debt knocked down to zero and I’ve kept it that way, which I understand helps my credit score as well, I also have never, not once, had a late payment on anything, which helps even more. Having said that, I have three credit cards, two of them are about 20 years old and one is about 5 years old. They have a combined credit limit of about $50k (used to be even higher, but they pulled the limits down about 10 years ago). I’ve never been turned down for any thing credit related, my credit score is quite high and, what’s always a bit amusing to me is when I’m looking at cars and the sales person tries to imply that I probably won’t qualify for whatever marketing is going on right now (ie $1000 down and $200/mo (for well qualified customers only)), and they come back and say something along the lines of ‘okay, you definitely qualify for it’.
I think some of the credit places like Credit Karma have a ‘what if’ feature where it can tell you how something will impact your credit score. You could take a look at that and see if it’ll tell you whether or not closing one of your cards will help or hurt you. And, if you do close one, try to keep the oldest one open.
One thing that worked out well with all the extra credit was about a year ago my parents were refinancing a building but were running into problems since their credit was in the crapper. They spent about a year getting it cleaned up. In the mean time I made them authorized users on two of my cards (well, one of them on each of two cards). That instantly gave them an extra $20k of available, but unused, credit with perfect payment history as far back as it goes. It gave them each a nice little bump.
And before anyone says anything, no, they wouldn’t have used the cards even if they could have. But they couldn’t, the cards got mailed to me, I activated them and then shredded them.
I plan to do the same with my daughter soon (probably not until she’s 18), just to start building her credit. I always feel bad for kids that graduate college having never had a credit card or loan with their name attached and end up having a really difficult time getting their first apartment (or car) for no reason other than that.
This is in response to Monty’s “I wonder how this is taken into account now while studen loan repayments are being held in abeyment for everyone.”
Well, I have 2. The one with Navient is from about a decade ago (bachelor’s degree). I think it might be consolidated. The interest rate there is still 5.375%. It’s only about $100 a month, so I’ve just been paying it.
The other is with FedLoan servicing. It’s more recent (Master’s degree). They knocked the interest rate down to 0% and deferred payments for a while.
One other note: one of the items in a credit score is the age of the oldest credit card. If you’ve had a credit card open for 20 years it’s better than having your oldest credit card being 5 years old, and so on. (I suppose the idea is that if you’ve been stable and responsible enough to maintain the card for a long time it speaks well of you, but regardless of the reason, these are the facts.)
Bottom line is that your credit score will get dinged a bit if you cancel your oldest card, irrespective of other considerations.
I’ve had a credit card with Wells Fargo for 15 years, with a $15K limit. I closed my bank accounts with WF ten years ago, in favor of a credit union. A couple of years back, my wife and I opened a credit card with the CU, the idea being we would transfer the balance and close the WF card. But the CU only gave us a $2000 limit. These are the only two cards we have.
The balance on the WF card is zero as of a couple of months ago. Since Wells Fargo is Evil with a capital E, I would really like to cut my ties with them and get rid of this card. The only thing holding me back is what it might do to my credit score (805 last time I checked).
I couldn’t quantify it. I myself have a Chase card that I never use but I keep it (in a drawer somewhere) solely because it’s my oldest card.
If I had some sort of philosophical objection as you seem to, I wouldn’t hesitate to cancel it. (My credit score is similar to yours.) It might be more of an issue in your case, in that your second oldest card is only 2 years old. But even then, not a huge deal, I would think.