Ask Liz Weston

Get smart with your money

Credit Scores

Q&A: Is it possible to have too many credit cards?

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Dear Liz: I have accumulated too many credit cards, sometimes to get bonus frequent flier miles. The frequent flier miles cards all have annual fees. I always pay cards in full each month.

My credit score is 800-plus every month. I have heard that your credit score is dinged when you close credit accounts. Is that true and by how much? How do you recommend reducing the number of credit cards?

Answer: Yes, closing cards can hurt your credit scores. The “how much” question is impossible to predict and will depend on your credit situation as well as how you go about reducing your card portfolio.

Keep in mind that there is no such thing as “too many credit cards” as far as credit scoring formulas are concerned. As long as you pay your bills on time and use only a small portion of your available credit limits, you can have lots of cards and great scores.

However, monitoring a bunch of different cards can be overwhelming. You also don’t want to keep paying annual fees for cards that aren’t delivering sufficient benefits.

If the fees are your primary concern, identify the cards you want to close and ask the issuers if you can get a “product change” to a no-fee card. This typically won’t affect your scores because the account is simply being transferred rather than being closed and reopened.

If you need to thin the herd, be aware that credit scoring formulas are sensitive to credit utilization, or the amount of your available credit you’re using on each card and overall.

If you have multiple cards from the same issuer, ask if the credit limit from the card you’re closing can be added to one of your remaining cards. Another option is to close only your lowest-limit cards.

You won’t want to close any cards if you’ll be looking for a major loan, such as auto financing or a mortgage, in the next few months. Hold off until after you’ve got the loan.

Also try to use up or transfer any points or miles you’ve earned on the cards you plan to close because those rewards may disappear at closure.

Don’t let your credit scores retire

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Getting rid of debt before retirement is often a good idea. Getting rid of your credit scores? Not so much.

People who stop using credit also stop generating enough data to produce credit scores, the three-digit numbers used to gauge creditworthiness. Not having scores can make it harder and more expensive to get loans. Even if you’re sure you’ll never borrow again, lacking credit scores also can make insurance, cellphone plans and security deposits more expensive.

Fortunately, you don’t have to be in debt to have good credit scores. You do have to use credit, however. In my latest for the Washington Post, learn how not to let your credit scores retire.

This week’s money news

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This week’s top story: Smart Money podcast on longevity literacy, and how debt impacts credit scores. In other news: What happens if UPS goes on strike, federal student loan interest rates now highest in a decade, and why Americans can’t buy Chinese cheap electric cars.

Smart Money Podcast: Longevity Literacy, and How Debt Impacts Credit Scores
Sean Pyles and Liz Weston delve into the significant yet often overlooked concept of longevity literacy.

What Happens if UPS Goes on Strike?
A strike by the shipping giant could put a crimp in America’s e-commerce habit.

Federal Student Loan Interest Rates Now Highest in a Decade
For undergraduates, interest rates on federal student loans are 5.50% for the 2023-24 academic year — up from 4.99%. But there are ways to keep your costs down.

China Makes Cheap Electric Cars; Why Can’t Americans Buy Them?
China has better access to battery materials and other advantages. But don’t look for those cars in the U.S. anytime soon.

Q&A: Credit scores and usage

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Dear Liz: Thanks for your recent column about how credit scores react to heavy credit card usage. We pay our credit cards in full each month but recently we had big charges on three cards for vacations, home supplies and other purchases. I am the primary account holder on all three cards and my credit scores tanked! I even got email warnings about it from my credit monitoring service.

I have paid off two of the cards and will pay off the third one soon. My husband has one credit card in his own name that he occasionally uses and he is an authorized user on the others. I have always been the fanatical financial partner so he thinks it’s funny he has great scores and I look like a loser! Good thing we were not planning to do a house purchase or refinance the mortgage.

Answer: Pretty soon your husband will have to find something else to tease you about. Your scores are likely to return to their previous levels once the high balances are paid off and you return to your normal spending habits.

Many people are surprised by how dramatically credit scoring formulas react to the amount of available credit they’re using. But this knowledge can help you the next time you’re planning to get a major loan.

For example, you could throttle back your credit card usage starting a couple of months before your application. Alternatively, you could make weekly payments instead of monthly ones to ensure the balances reported to the credit bureaus, and used in your scores, are as low as possible.

Another approach is to pay off your balance a few days before the statement closing date, since the balance on that date is the one that’s typically reported to the bureaus. (If any charges show up after you’ve paid off the balance, you’ll need to make a second payment before the due date to avoid late fees.)

Q&A: Why credit scores drop suddenly

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Dear Liz: The same thing happened to me as to the person in your column whose credit score dropped more than 100 points after large purchases. We bought plane tickets for international travel and our credit score took a significant but temporary hit. This also happened when we made a charitable gift by credit card. After an appeal, I was able to get the credit limit on the credit card we use the most increased, and I’m waiting to see if that prevents the credit score from dropping going forward. I did check our credit reports and there were no missed payments or other problems.

Answer: Credit scores can drop when you use a lot of your available credit, but a 100-plus-point drop is unusual and should be investigated. You’re smart to look for ways to mitigate the damage from high usage. Asking to have credit limits increased is one way; another is making a payment before the statement closing date. The balance on that closing date is what’s generally reported to the credit bureaus, and thus what’s factored into your scores. Just remember to pay off any remaining balance before the due date.

Q&A: Don’t bother with max credit score

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Dear Liz: I am seeking your advice on how to maximize my credit score. Recently one of my cards was canceled for non-use, which reduced my available credit to $75,000. I use three other cards in rotation, never use more than 3% of my credit limits and always pay the balances off. I have made a few requests to have my credit limits increased in order to elevate my current 835 FICO score, only to be denied. I want to maintain as high a FICO score as possible (850). In order to do that I need to “play the game” … only I have no idea what the rules are! Could you please help me navigate this?

Answer: There is absolutely no practical benefit to having the highest possible credit score. You’ll get the best rates and terms once your scores are above the mid-700s on a 300-to-850 scale.

Regular readers can recite this next part by heart: Keep in mind that you don’t have one credit score. You have many, and they change all the time.

Even if you did hit 850 with one scoring formula from one credit bureau, you probably wouldn’t keep it for long or achieve the same number with all the other available scores.

You already know the most important credit rules: Use your cards regularly but lightly and pay your balances on time and in full every month. (Credit scoring formulas typically don’t “know” if you’re carrying a balance, so there’s no advantage in doing so.)

If you’re determined to hit 850, however, you could try using even less of your credit limit, applying for a new card to increase your available credit (the initial small ding to your scores would be short-lived) or simply waiting, since often the mere passage of time will add points to your scores.