Credit Scores and Reports

Can too many cards lead to loan rejection?


According to FICO, there is no such thing as a penalty for too much unused credit

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Question for the expert

Dear Credit Wise,
I recently applied for a loan to be used to consolidate my credit card and car loan debt (total of which is about $29,000). I have no debt other than that and own in full (no mortgage) a home in a highly desirable neighborhood of Austin, Texas, now valued at about $400,000. However, my loan was turned down, and the reason cited was that I had too many credit cards.

I only actively use my checking account debit card and occasionally a Chase MasterCard. I have an American Express card, but the balance is zero, and I never use it. Obviously, I have on record more credit cards than that, and I would like to find out what they are and officially close them. How do I find out what credit cards I have that are still recorded as active?  — Beth


Answer for the expertDear Beth,
I am somewhat surprised that your loan was denied based on what you told me. According to FICO, there is no such thing as a penalty for too much unused credit. Modern credit scoring systems and computerized underwriting have done away with “too much available credit” as a reason to deny a loan. About one-third of a consumer’s credit score is based on credit utilization. What that means is that your score should actually go up — not down — when you have more credit cards and more credit available.

Nevertheless, you were denied and now you need to figure out what the problem is. Your first step should be to check and get copies of your credit reports. You should be able to get reports from all of the credit reporting agencies — Equifax, Experian and TransUnion — for free since you were denied a loan. You will definitely be able to pull all three if you have not accessed your free reports in the past year. If you can only get one, try to find out which agency your lender got its report from so you can compare apples to apples.

Your credit report will list all of your outstanding debts and open credit lines. From what the lender told you and what you yourself believe, you must have other credit cards that you are either unaware of or have forgotten about. Examine the report closely because it could also be that some accounts listed do not in fact belong to you. If that is the case, you need to alert the credit reporting agency about the mistake and call the creditor. This is one of the hallmarks of identity theft and you may be a victim.

Be sure to follow up any telephone calls about accounts that don’t belong to you with written correspondence. Send your letters certified, return-receipt requested to establish a paper trail.

It is up to you to decide if you actually want to close any accounts that do belong to you, but that you are not using. It might be worthwhile to follow up with the lender to see if you can get some clarification on why you were denied based on what FICO says about credit cards and available credit.

Be wise with your credit!

See related: Myth: Too much available credit hurts home loan, How to tell if a ‘friend’ stole your identity, Help your credit score rebound after a fall


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