You want I should get *another* credit card?
May 30, 2012 1:24 PM Subscribe
I have a good credit score according to creditkarma.com, have just a handful of credit cards that I pay off monthly, and am otherwise an upstanding citizen (j/k). According to their credit simulator, if I get a new credit card with a credit limit of at least $5-10k, that'll increase my score enough to boost me into the next level. I'm looking to refinance my mortgage, so I'm wondering if this will actually work. None of my research has given this as a fast/easy way to raise credit scores (for someone who already has a few credit cards, that is), so that's why I'm asking. (FWIW, I'm very frugal and disciplined, and I'm not at all concerned that I'm going to go on a wild shopping spree. The only reason to get the card would be to increase my score.)
For bonus points, are there any specific credit cards I should consider that would give me the highest limit? I'd rather not get a credit card that falls short of the $5-10k limit, then go out and get yet another one.
For bonus points, are there any specific credit cards I should consider that would give me the highest limit? I'd rather not get a credit card that falls short of the $5-10k limit, then go out and get yet another one.
Keep in mind that new credit lines lower your credit score by a few points temporarily, which may or may not balance out the boost you would get from a lower utilization ratio.
If you're going for a mortgage soon, I would just leave it alone. You'll be fine. A mortgage-enhanced scoring system might value average age of accounts over utilization ratio anyway (I don't know this for sure though).
posted by rabbitrabbit at 1:37 PM on May 30, 2012
If you're going for a mortgage soon, I would just leave it alone. You'll be fine. A mortgage-enhanced scoring system might value average age of accounts over utilization ratio anyway (I don't know this for sure though).
posted by rabbitrabbit at 1:37 PM on May 30, 2012
This brief FAQ might help you - I've referred to it before when I had a similar question. I'm not sure what you mean by "a handful" of existing credit card accounts, but it does seem that there may be something to this.
If you have decent credit now, I cannot imagine you would have trouble getting a new card with a 5K limit. My understanding (and I am not a financial professional) is that you don't want a brand-new card with, say, a 20K limit when you apply for a mortgage, because the question then becomes, well, what if this person starts really using this? I would say your instincts are correct that you don't want more than one new card, and you really don't want more than 10K available. Hope this helps!
posted by deep thought sunstar at 1:40 PM on May 30, 2012
If you have decent credit now, I cannot imagine you would have trouble getting a new card with a 5K limit. My understanding (and I am not a financial professional) is that you don't want a brand-new card with, say, a 20K limit when you apply for a mortgage, because the question then becomes, well, what if this person starts really using this? I would say your instincts are correct that you don't want more than one new card, and you really don't want more than 10K available. Hope this helps!
posted by deep thought sunstar at 1:40 PM on May 30, 2012
getting a new credit card will influence your credit score directly in two ways:
- it will reduce your utilization ratio, which others have spoken of, and
- it will reduce the average age of your credit accounts.
The first item will work for you, and the second will work against you (but it is weighted lower). If you are going to get a new card, I would suggest getting a fairly high limit. Do not close existing accounts, just use them once a year or so to keep them open.
posted by metaseeker at 2:06 PM on May 30, 2012
- it will reduce your utilization ratio, which others have spoken of, and
- it will reduce the average age of your credit accounts.
The first item will work for you, and the second will work against you (but it is weighted lower). If you are going to get a new card, I would suggest getting a fairly high limit. Do not close existing accounts, just use them once a year or so to keep them open.
posted by metaseeker at 2:06 PM on May 30, 2012
As many people have mentioned his will lower your utilization ratio, but for a mortgage application specifically you can and should game that metric without having to get a new card. Well before you apply (which is when your score gets calculated officially) pay off all of your cards to a zero balance, and until your credit score gets pulled use cash or a debit card instead. You may want to make one or two minor charges on the cards to get your utilization to the sweet spot rather than leaving it at zero, CreditKarma might help for that. Since you pay off your cards every month this should be possible, you just need to effectively pay for things a month early for a little while.
Also it's worth pointing out that your normal credit score does not cover everything that a bank will use to determine your risk profile. One way having a lot of credit can hurt you is by increasing your credit to income ratio, it's not part of the standard credit score because your income is not part of it, but your bank will have access to that information and may be wary of you being able to rack up a large amount of unsecured debt relative to your income.
posted by burnmp3s at 2:18 PM on May 30, 2012 [2 favorites]
Also it's worth pointing out that your normal credit score does not cover everything that a bank will use to determine your risk profile. One way having a lot of credit can hurt you is by increasing your credit to income ratio, it's not part of the standard credit score because your income is not part of it, but your bank will have access to that information and may be wary of you being able to rack up a large amount of unsecured debt relative to your income.
posted by burnmp3s at 2:18 PM on May 30, 2012 [2 favorites]
Response by poster: @deep thought sunstar: by "a handful" I mean I have 5 active credit cards, and creditkarma's also showing that I have 15 closed accounts for a total of 20. It's showing that I've got a "B" grade for total accounts and that "A" grade people have 21+.
Originally, I also thought this had to do with my credit utilization ratio, as some of you have pointed out. But if that's the case, then why (according to creditkarma's credit simulator) does my score only increase if I get a *new* card? If I simulate increasing my credit line on a credit card by the same amount ($5-$10k), my simulated score remains unchanged.
posted by edjusted at 3:21 PM on May 30, 2012
Originally, I also thought this had to do with my credit utilization ratio, as some of you have pointed out. But if that's the case, then why (according to creditkarma's credit simulator) does my score only increase if I get a *new* card? If I simulate increasing my credit line on a credit card by the same amount ($5-$10k), my simulated score remains unchanged.
posted by edjusted at 3:21 PM on May 30, 2012
(Worked in mortgage business for three years.)
Three points:
1. Your FICO score is most heavily weighted by how much credit you have available to you relative to how much debt you have outstanding. I suppose this is another way of saying "utilization ratio," although maybe I'm not understanding that term properly.
2. If your FICO is 760 or higher, you're a top-shelf applicant.
3. Try to avoid opening new credit cards right before you apply for a mortgage. It adds another variable to a process already full of them.
posted by st starseed at 8:33 PM on May 30, 2012
Three points:
1. Your FICO score is most heavily weighted by how much credit you have available to you relative to how much debt you have outstanding. I suppose this is another way of saying "utilization ratio," although maybe I'm not understanding that term properly.
2. If your FICO is 760 or higher, you're a top-shelf applicant.
3. Try to avoid opening new credit cards right before you apply for a mortgage. It adds another variable to a process already full of them.
posted by st starseed at 8:33 PM on May 30, 2012
Response by poster: Thanks everyone! I think I'm going to hold off on this until after the refi, but I just might try it afterwards to see if it really does do anything to my credit score. If I'm able to do it soon enough, I'll report back.
posted by edjusted at 7:00 PM on May 31, 2012
posted by edjusted at 7:00 PM on May 31, 2012
Response by poster: FWIW, I just tried the credit simulator again. This time, if I get a *new* credit card for $5-10k, my score goes down 2 points. If I increase my credit on an *existing* credit card by $5k+, my score is unchanged. Caveat emptor when using this thing, I guess.
posted by edjusted at 1:49 PM on June 20, 2012
posted by edjusted at 1:49 PM on June 20, 2012
This thread is closed to new comments.
I've gone through this exact process and had fairly good results, although credit karma low-balled my credit score by 30 points compared to FICO.
posted by ChrisHartley at 1:32 PM on May 30, 2012 [1 favorite]