I received an email just this morning asking what to do with unused credit cards. The consumer has $160,000 in available credit in total and has a $5,000 balance across her cards. The math tells me that she is about 3% utilized, which is great for her FICO scores. Her question was whether or not she could afford to close down some of those cards and still maintain her good scores. The answer to her question is certainly yes. If she closed down $60,000 worth of her cards she’d still be at 5% utilization (balance divided by limits). But my question to her was “why?” Do you want to close them for fear of ID theft? If so, did you know that the law caps your liability at $50 and most issuers will waive even that amount? Do you want to close them for fear that you’ll lose control and run up a bunch of debt? If so, shred them.
I realize this sounds absurd to suggest that someone with $160,000 in credit limits keep them open for the sake of your credit scores. But, the world of credit scoring has rules. And the rules state that having a lot of available credit indicates that you’re low risk, and your score will benefit as a result.
John Ulzheimer is the President of Consumer Education for Credit.com and owner of 2StepCredit.com. He is an expert on credit reporting, credit scoring, credit score ratings, and identity theft. Formerly of FICO and Equifax, John is the only recognized credit expert who actually comes from the credit industry. He is a weekly guest on FOX’s The Willis Report and is the credit blogger for the New York Times and Mint.com. He has served as a credit expert witness in more than 65 cases and has been qualified to testify in both Federal and State court on the topic of consumer credit.
