FICO Credit Scores - Credit Utilization
Stef Donev of Interest.Com writes for the Orlando Sentinel about some of the "odd" aspects of how FICO credit scores are calculated - in particular, on the notion of credit utilization. For example, your credit score will fall if you cancel credit cards with large credit lines but low or no outstanding debt on them and leave open other credit card accounts which are closer to being maxed out.
Let's say you have five credit cards and a $10,000 limit on each of them, giving you $50,000 in available credit. Now let's say you owe $25,000 on them. That means you are using 50 percent of your available credit. If you had one credit card that you owed nothing on, you could cancel it. Doing so, however, would reduce your credit limit to $40,000, and you would then be using 62.5 percent of your available credit. That puts you "closer to the edge," Watts says. You now have less available credit -- less room to move.
Does this also mean your credit score decreases if a credit card company lowers your credit limit to something just over your outstanding balance?
If so, how can a CC company be held accountable to not make your credit utilization look artificially high?
Posted by: Dave | February 17, 2009 at 03:06 PM