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Will $1 Million Credit Limit Hurt Score?

Leslie McFadden, Bankrate.com

Q: Dear Credit Card Adviser,
I have approximately 20 credits cards with a combined credit limit well in excess of $300,000. At the start of this credit crunch I read about "use it or lose it" regarding credit cards.

credit cards

Since that time, I have been regularly rotating and charging my credit cards to give the impression that I use them on a regular basis. I never carry a balance and always pay the full amount owing on or prior to the due date. In the credit card world I am known as a "deadbeat," but my question to you is, with so many credit cards with balances that even though combined never ever exceed 10 percent of my credit availability, does that in and of itself lower my credit score?

P.S. My goal is to reach $1,000,000 in credit card limits; any advice without ever going into debt?
-- Credit Card Junkie

A: Dear Credit Card Junkie,
It's true that some issuers are closing inactive accounts, and I do recommend people use cards they wish to keep. I also must commend you for paying in full each month.

That said, I'm appalled that you want $700,000 in additional available credit. That's a goal that is risky and pointless. While your FICO credit score won't decline because of numerous credit card accounts, it could drop due to a missed payment on one of your many cards. I am concerned that you may be adding too many due dates and debt obligations. Unless you only charge items you need, each new card represents more unnecessary spending -- all for the sake of a $1 million total credit limit, for which you get no point boost.

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Remember that your debt-to-credit limit ratio, or utilization, is what matters, not the limits themselves. If your utilization is already low, then adding more accounts probably won't boost your score much. In fact, inquiries from new accounts can ding your score temporarily.

Now on to your actual question about whether too many credit card accounts with balances can damage your score. The answer: Yes, it can.

"It's true that having a large number of revolving accounts with balances can hurt your score, as compared with having only a few accounts with balances; with the extent of negative impact being less when there's low versus high overall utilization on those accounts," said Barry Paperno, consumer operations manager at FICO, in an e-mail statement. The impact depends on the other information in your credit report.

He said the threshold at which a person would have too many revolving accounts with balances depends on the person's score card. A person's score card, or the specific FICO formula applied to a group of borrowers with similar credit profiles, depends on factors in his or her credit report, such as length of credit history, number of accounts and the presence or absence of derogatory information.

While the overall utilization looks stellar, the FICO formula also measures utilization by the highest utilization on any one revolving account. If someone charged a high amount on one card, for example, but didn't blow the total utilization of 10 percent, "this situation could result in a lower score than if his overall 10 percent utilization consisted only of accounts with low individual utilization," Paperno wrote.

My advice: Let your accounts age and put away the applications. Continue to pay in full every month and charge small amounts on the cards in use. Keep up the good work on the teeny overall utilization.