Was Suze Orman wrong? Credit card question

[disneysteve]

I was listening to the Suze Orman show and a caller said that he has 5 credit cards with a total credit line of $15,000. He was wondering if he needed to have that many cards and if closing any would negatively affect his FICO. He never carries a balance, paying his bill in full each month.

Suze's answer was that if he doesn't need that much credit, he should close the extra cards. She said that since he pays his bill in full every month, his credit utilization ratio doesn't matter. This is the part that I don't agree with.

I also pay my credit card bills in full every month but the credit bureaus don't know or care about that. When they look at my credit report, they never see a zero balance on my account. By the time I pay my December bill, for example, I'll already have racked up a couple thousand in charges for January. So I've always believed that the utilization ratio did matter.

Am I right or is Suze right?

[kork13]

To an extent, it depends on when you pay your credit card bill. For a long time, I used to pay my credit card off each month BEFORE the statement closed out, which meant that my statement balance was typically either $0, or less than $100 (whatever I had charged in the couple days between my payment and the end of the statement cycle). If that is the case, your credit utilization ratio (at least as far as credit cards are concerned) is effectively 0-1%, e.g., essentially meaningless.

[disneysteve]

To an extent, it depends on when you pay your credit card bill. For a long time, I used to pay my credit card off each month BEFORE the statement closed out, which meant that my statement balance was typically either $0, or less than $100 (whatever I had charged in the couple days between my payment and the end of the statement cycle). If that is the case, your credit utilization ratio (at least as far as credit cards are concerned) is effectively 0-1%, e.g., essentially meaningless.

I guess if you don't use the card much that would be true. For me, though, we use our cards regularly, nearly daily. Let's say our statement runs from 11/15-12/15. We won't get the bill until 7-10 days later so around 12/23 or so. It will be due a couple of weeks after that so maybe 1/6. I don't wait until the last minute to pay the bill so let's say I pay it on 1/2. That means about 16 days have already passed in the new billing cycle. If my average bill is $3,000, on average I'd already have charged about $1,500 or so during that time. Not a problem if my credit line is $30,000 but if my line was only $3,000 wouldn't that make it look like I had a 50% utilization ratio?

[Petunia 100]

I guess if you don't use the card much that would be true. For me, though, we use our cards regularly, nearly daily. Let's say our statement runs from 11/15-12/15. We won't get the bill until 7-10 days later so around 12/23 or so. It will be due a couple of weeks after that so maybe 1/6. I don't wait until the last minute to pay the bill so let's say I pay it on 1/2. That means about 16 days have already passed in the new billing cycle. If my average bill is $3,000, on average I'd already have charged about $1,500 or so during that time. Not a problem if my credit line is $30,000 but if my line was only $3,000 wouldn't that make it look like I had a 50% utilization ratio?

Yes, it sure would.

Suze is not a math person. She is a great motivator, and I love her "People first, then money, then things" mantra. But I would not take her advice in areas concerning mathematical facts without doing my own calculations; it's just not her strong suit.

[disneysteve]

Suze is not a math person. She is a great motivator, and I love her "People first, then money, then things" mantra. But I would not take her advice in areas concerning mathematical facts without doing my own calculations; it's just not her strong suit.

It annoys me when the well-known financial "gurus" like Dave Ramsey and Suze Orman just get things totally wrong like this. I think they both have very good shows packed with good advice that helps a lot of people but I think that gives them a certain level of responsibility to make sure they are dispensing accurate advice. I'm willing to give DR a bit more slack because he does a live radio show. Everybody makes mistakes, but Suze's shows are taped and edited in advance. She has time to fact check her information before the show airs. I've heard both of them give totally false advice multiple times. I'm not talking about info that I don't agree with. I mean just plain factually wrong. I want to scream back at the iPhone but I now that won't help. I might shoot an email to Suze Orman though about this issue.

[JustBill]

I heard her say that as well, and knew she was inaccurate. Then I started to think, this was one of her "best calls you never heard" shows, perhaps the inaccurate statement was the reason the call was not previously played. Because during the first edit-for-air, they realized the error. ??

[disneysteve]

I heard her say that as well, and knew she was inaccurate. Then I started to think, this was one of her "best calls you never heard" shows, perhaps the inaccurate statement was the reason the call was not previously played. Because during the first edit-for-air, they realized the error. ??

If that's the case, it shouldn't have been played at all. I'm sure she had plenty of other calls she could have chosen to fill that slot.

[JustBill]

If that's the case, it shouldn't have been played at all. I'm sure she had plenty of other calls she could have chosen to fill that slot.

Well, yes, I agree. Just a theory.