Credit Q&A: Will “Too Much” Credit Negatively Affect my Credit Score?

Published

August 22, 2011

Tom Quinn is Vice President of Scores at FICO (Fair Isaac), and has more than 25 years of experience in the credit industry with previous positions at FICO, Nomis Solutions, MDS (now known as Experian) and Citibank.

Shelly writes that she and her husband have been working hard to pay down balances on their credit cards and have made great progress. She is wondering if they now look like they have too much available credit and if they should close down some credit cards and/or ask the lenders to lower their credit lines.

First off, congrats on paying off the balance owed on several of your credit cards! That should help increase your score.

From a credit score perspective, there is limited (or no) opportunity to increase your score when you proactively shut down a credit card account, or request the lender to lower your credit line. In fact, such actions could lower your score, as the reduction of your available revolving credit could end up making you appear more heavily utilized with your revolving credit if your balances on those accounts stay the same or increase.

I have heard that some lenders may have credit criteria or rules that look at your total available credit, and they may have concerns about potential exposure if you were to fully use all of your available credit. Some of these lenders may request that you reduce your amount of available credit before they grant your request for credit. Nevertheless, not all lenders share this criteria.

Therefore, it’s probably prudent to wait until you are seeking new credit to address this issue. Bring it up with the lender, and only close an account or request a line reduction if the lender indicates that action is needed to approve you for the loan. But remember, taking this action could negatively impact your score in the short term.

[Featured Product: Looking for credit cards for fair credit?]

Image: MoneyBlogNewz, via Flickr.com