I DON'T WANT ALL THE CREDIT

I recently decided to simplify my finances by moving some credit card balances and getting rid of some unused cards. It was going to feel great to finally close those accounts. And tearing up the plastic would be symbolic of my economic progress, as I scrape and claw my way back to black.

I found a new Capital One Mastercard offering me 0% on balance transfers for a year with no balance transfer fees and a fixed 4.9% APR after that. As someone who writes credit card solicitations for a living, I recognized this as a very good offer. I immediately moved balances off of two separate cards to take advantage. I then went and closed one of my other accounts – just to show them I was boss.

“I don’t need you anymore!” I thought triumphantly as I navigated my way through their exhausting tele-menu system for the last time.

Turns out that was a mistake.

I assumed removing that card and all of its unused credit from my name would be a smart move. But it wasn’t. If you have any debt at all, unused credit is actually a GOOD thing. The more, the better. That’s because a large part of your credit score is based on your ratio of outstanding debt to available credit. By canceling my unused card, I actually HURT my debt-to-available-credit ratio.

Fortunately, my new card afforded me an even larger credit limit than the one I canceled…so in the end I ended up improving my ratio slightly. But had I kept my original card, I would have had a much better debt-to-credit ratio, and would have preserved the 6 year relationship I’d had with the original lender – something else creditors look for in evaluating your history.

Too much credit isn't the red flag it used to be. In fact, it's really only an issue if you have more than 7 lines open at once. Then you may want to consider consolidating. Otherwise, getting rid of your unused credit cards isn’t necessarily a good idea. Keeping cards you’ve paid off is actually a SMART move – even if you never intend to use them again. Tear them up, stash them in your sock drawer, or hide them in a cookie jar – but keep that line open. Lenders consider you more economically viable when you have access to dough.

Want to know more about how these folks keep score? Go here:

http://www.fool.com/ccc/check/check02.htm