Credit availability/Credit use

[kork13]

A couple questions really, but they're somewhat related, so I decided I'd just lump them together. To simplify, I'll highlight the actual questions....

First, personal finance guru's tell you not to use more than 30% of your credit availability to help you credit score... Does this include non-CC credit lines? For example, I have a car loan (originally $11k @ 8.7%) and a personal loan ($30k @ 1%). So to include that $41k in my credit use/availability calculation, it would be impossible to use less than 30%, because those 2 loans make up 75% of the total credit available to me. So.... how do loans like this factor in? (this is just a quick Q, out of curiosity)


Second, what is the real impact of closing credit cards? I think in the coming months I'm gonna look at downsizing... I currently have 3 credit cards:

Discover card, $2250 limit, had it for ~2 yrs, only use it for gas/auto expenses.
Bank's CC, $9k limit, had it for 4 yrs, use it for pretty much everything.
Club membership card (req'd to have it for a club membership... irks me...) $2k limit, only got it last month, ....don't really use it much at all. sometimes for groceries.

So I understand that closing CC's lowers your credit availability, hurting your FICO, but I'm looking at closing the Discover, possibly the club card, and just not using my bank's card. I think I'll look around for a new card that has a rewards plan I like better. I normally only charge ~$1500-1800/mo (total) each month, most of which is just my rent, gas, and food. I pay it all off every month, and honestly, am not worried about my FICO--I don't plan on needing it for at least 2 years, more likely not for around 5 years. My credit (including what I've shown here) is squeaky clean.

So with all of that in mind, is there any reason that I should NOT close the Discover and Club cards, mostly stop using my bank card, then look at getting a new one to become my primary card (provided it's got a good rewards plan)? It would simplify things, eliminate open accounts with only minimal use (security concerns also play in here), and slim down my wallet (always nice).

[noppenbd]

The short answer is, no one knows for sure because the FICO formula is a trade secret. However, from what I have heard from the gurus is that installment loans (car loans, person loans) do not negatively affect your score in the same way that a revolving balance on a credit card account would. In other words, a personal loan with $5000 remaining to be paid would not have the negative effect that a credit card with a $5000 revolving balance would. So I would not worry about those loans affecting your score.

For your second question, I think as long as you do not charge 30% of your total available credit each month you should be ok. However, to be on the safe side you might just consider getting the new card first, then closing the unwanted cards. Or to be even more conservative, just stop using the unwanted cards (put them in a drawer). Then they should only help your score.

[boosami]

..., personal finance guru's tell you not to use more than 30% of your credit availability to help you credit score... Does this include non-CC credit lines?

This does not count installment loans (fixed-payment loans with an associated term). It only applies to revolving accounts where you pull and pay at your leisure.

..., what is the real impact of closing credit cards?

Closing a credit card first and foremost lowers the amount of available credit you have, which raises your total utilization ratio if you carry a balance.

It also affects your average account age and credit history, though not immediately. A 10 year old closed account will still contribute to your average account age, as long as it still appears on your credit report. An open account will stay on your report forever, while a closed accout will drop off after 10 years prior to the close date. All the history goes with it. So, if you close an old account in 10 years you'll lose that old history from your CR.

..., is there any reason that I should NOT close the Discover and Club cards, mostly stop using my bank card, then look at getting a new one to become my primary card (provided it's got a good rewards plan)?

If there's no annual fee, the general concensus is to keep the accounts open because it increases your total limit, and the account will remain on your credit history indefinitely. Aside from your history of timely payments, the utilization ratio and amount owed make up the largest portion of your FICO score. If there's an annual fee and you're replacing the card with another one, close it... It's silly to pay an annual fee for a card you don't use.

[boosami]

FYI--FICO score explained...