The relation between your credit card limits and credit score is actually more interdependent.  Your credit score utilization is found by dividing your current balances by your limits.  The lower the percent, the better for your credit score.  Individuals with excellent credit scores are found to be below 30%.

So a rise in your credit limit will cause your utilization to go down and could potentially improve your credit score.  A common method of making this happen would be to ask for your credit cards to increase your limits.  This is usually better than applying for new credit because it will lack the application process.

But we need to consider what is the hidden reason why you want an extension of your credit limits? This is the opposite scenario.  You are close to your limits or have a high utilization than you like and want to lower it.  A simple and quick way you think is to ask for your credit card limits to be increased.  This is scary in the prospect you need control not more credit that you can get your hands on.  Also, the success you will have with this strategy depends on your financial health, but you should assume the success rate to be low.

The idea comes back to if you don’t need to credit don’t apply for it.  The individuals that are good, excellent or even have a perfect credit score don’t ask for credit unless they need it.   They use what they have responsibly or not at all.

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Chances are if you have a good credit score your utilization is pretty low.  Those with excellent credit score are usually around 10% to 15%.  This will more than likely leave you with thousands of available credit.  The thought of lowering limits has come across the mind of many people with the idea of, “I don’t need all this credit.”  Chances are they are right, but lowering limits can be damaging to a credit score.

If you do lower limits your utilization is going to go up.  This is the second largest part of your credit score and is calculated by dividing your balances by your credit limits.  So if you have less of a credit limit to divide by your utilization is going to up: hurting your credit score.

If want to lower limits to reduce your exposure to identity theft the better proactive would be to buy a credit monitoring program.  These watch your credit report for an changes and they even come with identity theft insurance. My recommendation is to get FICO® Quarterly Monitoring.  This is $50 a year and it comes with $25,000 in identity theft insurance and you get to review your credit report and credit score 4 times a year.  This is a steal compared to a 3 in 1 credit report.

So if you want to lower your limits this is OK.  There are times to lower limits like if you can’t control your spending.  You can also tell your credit card company to stop it.  The best thing you could do is to just leave them along and what your credit for any thefts.

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The first question is do you pay on time.  If you want an excellent credit score, you should never miss a payment.  Even one late payment can set you back and using budgets or online bill pay can be easy way to ensure you are on top of it.

How much do you owe?  Do you carry credit card balances month to month?  If so, what is your utilization on your revolving lines of credit.  You should try to keep this below 15%.

Limit the amounts of credit you have.  You should avoid every credit card offer you get in the mail or offered to you in a store.  You should stick to just a few credit cards and don’t consistently add to the list.  This will help you develop a stronger credit history in regards to your average age.  Also, this will limit your credit inquiries or applications for credit.

Use different types of credit.  An excellent credit score will use many different types of credit.  This is commonly referred to as a healthy mix.  Having a mortgage or some other installment loan will so you can manage different forms of credit not just credit cards.

If your goal is to have an excellent credit score, you need to be always on top of it.  This is just another thing in your busy life.  But if you don’t you are sacrificing thousands in saved money.  The answer for people really serious about getting an excellent credit score is to sign up for credit monitoring.

OK, it does cost money, but any improvement in your credit score will pay off ten fold.  If you are checking your credit score on a regular basis it is costing you money any ways.   Remember credit report is free but not a credit score.  So if you are going to spend  $30 to get your credit score, you should just sign up for FICO® Quarterly Monitoring.  This is $50 a year and you get 4 reviews of your credit score and your FICO credit score.

This is not a bad deal considering a 3 in 1 credit report with just one credit score costs $39.  The idea of credit monitoring is something that will help you sleep at night.  Getting something like this shows you want to have not just a good score but an excellent one.

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It is going to hurt your utilization.  This is the part of your credit score that judges how much you owe.  It is found by dividing your balances by your total credit limit.  Now, if you close this account, this means you will have less credit available, but you balances have not changed.  This means your utilization will go up.  This is a negative factor, you want a low utilization.  Having less credit available will  mean you will have to lower your balances to get the level of utilization you use to have.

For example, if you have three credit cards one with a zero balance and a $2,000 limit, another with $1,000 balance and $2,000 limit, and  the third with $2,000 balance and a $5,000 limit.  Your utilization would be the sum of your balances, $4,000, divided by the sum of your credit limits,$9000 would be 44%.  If you close the first account with a $2,000 limit, you are now dividing the same balances, $4000 by a lower amount, $7,000.  This would put your credit card utilization at 57%.  And to get back down to where you were you would need to pay off  $900 to reach 44% again.

It could hurt your credit history. Your credit score puts a weight of 15% on your credit history.  This is the average age of all your accounts and the age of your oldest account.  If you close an account without knowing how long you have had it, you could damage your credit history and your credit score.

A common reason why people want to close an account is they have not used it in a long time.  They have got a new credit card and it gives them some perk or a better interest rate.  Their old card might be one of the first ones they signed up for and it carries no balance.  If you close this account your average age is going to go down for sure.  Even worse this card could be your oldest credit card account, if you close this account the next oldest will take its place.  This will have a double negative effect.  It will lower your average age of all your accounts and have a newer account take its place as your oldest account.

You need to protect you oldest account.  It is OK not to have a balance, but use it once in a while.  This will avoid your credit card company closing the account becuase of lack of use.

There are reasons to close an account.  If you lack control and closing the account is the only way to rein yourself back in, go for it.  If you have a low utilization and it is one of your newer accounts it could be alright.  This is not going to be the end of the world.

The truth is know how long you have had an account.  Also, how much this could potentially effect your utilization.  Be Careful is the point.  You might not know what is your coldest account or what your utilization is.  Well, get a copy of your credit report.  On it you will find the balances on each account so you can do the math.  Also, you will find the date the account was opened.  You will then know for sure which account is the oldest.

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The actual calculation for utilization is to take the total amount owed and divide it by the total credit limit.  This is done as a whole and by each account.  So you will have an individual account utilization and a overall utilization.

A common misunderstanding is your utilization is found by what shows up on your credit report and not done a day to day basis.  Your credit score is a snap shot based on your credit report.  If you pay a bill and it has cleared with your account or it is not reported to the credit bureau it will not be counted when calculating utilization.  It doesn’t matter if you just completely paid off the account it will not be counted towards lower your utilization.  If you did do something like this it would be best to wait till it is reported to the credit bureaus and then check your credit score.

MyFICO reports that :

Nearly 37% carry more than $10,000 of non-mortgage-related debt as reported to the credit bureaus.

and

About 15% are far less conservative in their use of credit cards and have total card balances in excess of $10,000.

These are some interesting statistics.  Where do you fall?  If you are looking to improve your credit score, Utilization is a great way.  The issue that many people run into is the fact it is not easy.  If you have over $10,000, it is more than likely not going to paid overnight.  This is a longer term strategy to improve your credit standing.

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