Barry Paperno is a freelance writer and credit scoring expert with decades of consumer credit industry experience, serving as consumer affairs manager for FICO (formerly Fair Isaac Corp.) and consumer operations manager for Experian. He writes “Speaking of Credit,” a weekly reader Q&A column about credit scoring and rebuilding credit, for CreditCards.com. His writings about credit scoring have appeared in The Huffington Post, MSN Money, CBS Money Watch and other consumer finance websites.
Dear Speaking of Credit,
Hello, I am in a dilemma, and constantly get different advice. Here is the scoop. I have four open bank credit cards, three with Chase, one with American Express. Of those, I just now started to use the American Express, and one of the Chase ones. The other two are dormant for a couple years. They both have a low credit limit. I was always a debit card kind of guy, since I found spending money I have is easier to manage than spending money I don’t have.
In addition to these cards, I have four cards from department stores. I got them when I was younger, since opening a credit line got me a discount on the purchases (pretty stupid, I know). But with large purchases it made sense.
Now I have a total of eight cards. I was thinking of closing all the department stores ones. They all, however, have a high credit limit. I was told that closing those cards will damage my credit score significantly. Please let me know what I should do. I would like to downsize to only two, maybe three cards, but closing five would probably damage my score. I don’t have any debt, besides for my student loan, and I just finished paying off my car a couple months ago. Any advice will help, and thank you in advance. — Jacob
As your comments suggest, there seems to be no shortage of conflicting information out there about how many cards you should have, whether you should close some of your cards if you have “too many,” and whether closing cards will help or hurt your score. As such, I don’t blame you for being a “debit card kind of guy,” though now, for some reason, you appear to be headed back to also being a “credit card kind of guy.”
It’s also apparent that, as someone with a student loan, paid-off car loan and eight credit cards, you’re far from new to credit.
While I can understand how the temptation to trim your card inventory down to two or three from the current eight may feel like a responsible move, and may even have been mentioned as part of some of the advice you’ve received, the truth is that the number of cards you carry is one of the least important factors in your credit score.
If it helps any, know that consumers with very high FICO scores (785+) tend to have about seven bank credit cards on average, which makes you nowhere near having too many credit cards for a good score. Nor should you worry about having too few. More importantly for your score, you have a good mix credit: You have cards and loans, both paid (auto) and open (student), with no need for concern about the makeup of your credit report.
I can also assure you that, despite what you may have heard, you have no reason to fear damage to your score should you decide to close a few — as long as you keep meeting certain conditions. Your score won’t be at risk as long as you remain credit card debt-free. And as long as your total charges each month don’t make up any more than a small percentage of the total credit limits on your open cards — 1 percent to 9 percent being ideal — closing those smaller-limit cards should not affect the quality of your score. If you do charge more than that small percentage before paying the charges off the following month, simply make a payment before the current statement date so that only a small balance appears on your next monthly statement.
This is not to say that closing cards can never hurt anyone’s score. For consumers with high credit utilization (balance/credit limit ratio) resulting either from carrying high balances from month to month or charging a high percentage of the credit limit(s) before paying in full, closing cards can reduce their amount of available credit, which can then raise the utilization ratio and lower their scores.
While not likely to hurt your score, don’t expect closing cards to help it, either.
Regardless of the scoring impacts, there are some good reasons to close accounts, such as:
- Avoiding annual fees. Since there are many no-annual-fee cards offering high credit limits and rewards programs to consumers with good credit scores, by all means close the account if you don’t feel like you’re getting your money’s worth from an annual fee card.
- Thwarting identity theft. With fewer cards in your wallet, sock drawer, or elsewhere, the chances of a card falling into the wrong hands and being used fraudulently are reduced.
- Resisting temptation. While it doesn’t sound like you have this problem, consumers who have trouble controlling their spending, such as during their favorite department store’s big annual sale, may want to simply close that card and be done with it.
As for your thoughts of closing all four of your department store cards and saying you were stupid opening them to save money, I disagree on both counts.
With these accounts making up some of your oldest credit history and your highest credit limits, I would strongly suggest keeping them open and active, so they can continue to contribute positively to your score. Just pull each of the store cards out once or twice a year to buy something on sale that you would have bought anyway and pay for the charges right there at the store. It’s not often acknowledged that department store cards, particularly old and high-limit ones, can contribute almost as many points to your credit score as bank credit cards having the same vintage and amount of available credit.
And lastly, regarding your self-criticism about the opening of those cards for the purpose of saving money being “pretty stupid,” on the contrary, I can’t think of a better reason for a young person to open new credit as long as it’s paid on time. When did discounts become stupid? And again, those department store cards have been and will continue to be a very positive influence on your credit score.
One good thing about credit scoring is that if you are credit card debt free with a history of on-time payments, it hardly matters how many cards you have or whether you leave all of them open or close some. Just continue to do what feels right, whether as a debit or credit kind of guy. A good score should follow.
Meet CreditCards.com’s reader Q&A experts
Does a personal finance problem have you worried? Monday through Saturday, CreditCards.com’s Q&A experts answer questions from readers. Ask a question, or click on any expert to see their previous answers.