Have two cards from one issuer? Trying combining credit limits before you close one
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Dear Keeping Score,
I have a few cards with one bank, all I don’t use except one. The card I use has 10 years of history. All the accounts have a $0 balance and no annual fees.
Would it be advantageous to close the newer cards (under two years of age) and transfer the credit lines on those cards ($30,000) to the older card that I use all the time and had for 10 years?
The bank has confirmed they will transfer the credit lines. Was thinking this would help my average age of accounts. Also, possibly, only having one card with a $50,000 credit line would be better than four cards with a total of $50,000 in credit. Thanks in advance! –D
Let’s start with why did you get four cards from the same issuer? Has the reason for getting four changed?
If it was for rewards, are you sure you won’t lose them by closing the card? For example, I get a free hotel night and elite status with one of my credit cards. Closing it would forfeit the night and status. So first, be sure you know the consequences of canceling.
Next, if your action will leave you with only one credit card, I suggest you look to open at least one additional card. Having only one card available can be problematic if the card is refused or compromised for any reason, or lost while on vacation. I like to think of a spare card like having a spare tire in case of a flat.
Of course, if you open a new card, you will have a hard inquiry that will drop your score slightly for a few months, but then it will recover.
A final consideration is that if in the future you decide to part ways with your $50,000 card issuer, chances are you’ll end up with much less spending power on your new card.
Closing your cards shouldn’t hurt, but it may not help much, either
Aside from the above, I don’t see a major problem with doing what you suggest, but I don’t see an advantage either. The main reason for not closing accounts is that you generally lose the credit line, but since you have already checked with the bank and they are willing to transfer the lines to your oldest card, this isn’t an issue.
When it comes to your credit score, the actual number of credit cards doesn’t factor into the FICO score. What counts is the length of your credit history (15 percent) and your credit utilization ratio (30 percent), both of which you will retain by consolidating the cards into one.
There may be a slight advantage for your FICO score from making your individual account utilization the same as your overall utilization number but it would be small, if any, as your total utilization ratio will remain the same. And, as you said, it would improve your average age of accounts, which is part of the credit history length scoring factor.
In general, all you need to do to maintain a great score is to pay your bills on time, keep your utilization low, maintain a relationship with a creditor for an extended time (10 years with one creditor is a great goal) and have a mix of credit types.
You haven’t told me if you have other types of debts, but good examples of a credit mix that will generally be good for a credit score are having a mortgage or any type of installment loan, like a furniture or car loan.
You don’t say what your current score is, but if it’s not exactly where you would like it to be, my suggestion to boost it would be to look at your mix and see if you can comfortably add something.
Be careful with all that credit
Having a credit card with a large credit line is nice, but I would caution you to be extra careful with any spending decisions you make once the transfers are complete.
When I say you need to keep your utilization low, I am talking about keeping overall spending between about 5 percent to 20 percent of your available credit in one billing cycle. With a $50,000 limit, 20 percent equates to $10,000 and that is a lot!
Remember, beyond all the calculations and algorithms, a higher amount of debt equals a higher default risk profile, which equals a lower score.
If you have the funds to pay that amount off each month, all the better. Just because you have $50,000 at your disposal does not mean that you ever want to get close to that max. But it’s comforting to know you can in an exceptional situation.
Remember to keep track of your score!