Misconceptions about Credit Cards

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Originally Posted by wifey

I have been guilty of applying for credit cards when offered a deal (for example 10% off my purchase). I now have an embarrassing collection of credit cards. None of them have a balance. They are all paid off (Thank my lucky stars). But now I would like to start cancelling them. I have been told that this will affect my credit score. Any thoughts or opinions on that??

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It would depend on if you were close to apply for a loan or mortgage. Cancelling a card will cause a temporary slight drop, but if you do indeed have "too much" credit available, it will haunt you in the end. Perhaps cancel one every 3 months or so until you have only 3 or 4. Meanwhile consistently use your main cred. cards (use, then pay) during that time. That will help keep your score from dropping.

Wifey: As noted above 15% of the score is related to length of credit history. The longer you have them the better rating for this 15%. If you are not using them at some point they will be dropped by the credit bureau anyway. If you cancel any do the department store ones. Keep any bank CCs as lenders like to see those and your history with them.

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Originally Posted by Brynhilde

I thought also as well that the outstanding debt is more what matters, not what you have available. I would assume available means unused. Perhaps you could further explain the difference and my apologies in advance if you explained it already but I haven't seen it on this page :) Thanks MQ

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Brynhilde, outstanding debt does indeed affect your credit. If you keep it at 60% or less of your limit, that is ideal.
If you have too much "available", it makes Lenders uncertain as to your credit appetite. "Available credit" is similar to having a line of credit. . .you "could" go out tomorrow and run everything up to it's max. . .literally. They look at that as a possibility and in many cases a negative. . . if you have too much available to you.

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Originally Posted by Brynhilde

I thought also as well that the outstanding debt is more what matters, not what you have available. I would assume available means unused. Perhaps you could further explain the difference and my apologies in advance if you explained it already but I haven't seen it on this page :) Thanks MQ

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A term used is credit utilization. AS mentioned 30% of your credit score is for credit utilization. If you have 2 cards with $1000 limits and you are carrying $750 on each you have used up $1500 of $2000 or the utilization is 75%. If you have 1 card with a limit of $2000 and you have a balance of $1500 and another with $8000 limit and no balance you are using $1500 out of $10000 which is 15%. Your score would be higher. You see different numbers but carrying no more than 30% maximum debt on CCs is usually mentioned to help your score.