How Your Credit Rating Is Calculated

Depending on who you talk to, you are liable to get a lot of conflicting information on how having multiple credit cards hurts your credit score.

How Your Credit Rating is Calculated. Even seasoned credit counselors, who should know better, occasionally are inaccurate on what does and does not hurt or help your credit score. The 3 main credit reporting bureaus are Experian, and TransUnion, Equifax. Payment History 35% Total Debt 30% Length of Credit History 15% New Credit Applications 10% Types of Credit Used 10% Your credit score carries a lot of weight but according to a recent survey, 75% of Americans do not know their credit score and almost 20% have never seen their own personal credit report. There are lots of variables and the particulars of your situation may change the balance of the calculation a small bit but, this is the, on average breakdown of what factors figure into your credit rating. These numbers are staggering considering the impact that their score has on their daily lives. When applying for any type of credit, lenders use your credit rating to determine if you get approved for credit, how quickly you get approved, and the interest, your credit limit rate that will be applied to the money that you borrow.

Your credit rating affects everything that you do money- wise. But How Does Having Multiple Credit Cards Hurt My Rating? When credit bureaus calculate your credit score, one of the key figures that they look at is your balance- to- credit- limit ratio. Multiple credit cards can hurt your credit rating if your balance exceeds 30% of your available limit on one or more of your credit cards. If your credit card balance exceeds 30% of your total credit limit, thats a red flag to the bureaus that you may be reckless with your spending, and an increased risk to default on the money borrowed. That means that you have a credit limit of$ 12, 500 but you have used$ 8300 of it, which means that you have used about 66% of your available limit.

For example, lets say that you have$ 8300 in credit card debt spread out over 5 different credit cards with an average credit limit of$ 2500 on each card. Credit reporting agencies have to play the averages. That is how multiple cards can hurt your rating, even if you are careful about paying your bills on time. For you, $8300 might not seem like reckless spending but, people that exceed, on average 30% of their available limits tend to have a higher rate of default. Should I Close the Credit Card Accounts that I Rarely Use? Even though you may not have used an old department store account in years, the credit limit on that card still figures into your total amount of available credit. Probably not.

If you close it, your percentage of debt to available credit may increase, thereby making you a higher risk in the eyes of the credit bureaus. When an account is closed, the credit bureaus generally assume that the account was closed by the lender, which negatively affects your credit rating. If you do choose to close an account, have the creditor report to the agency that the account was closed at your request.