Applying For A Credit Card Is As Easy As 1-2-3.

Utilization Rate : Primary factors in Determining Your Credit Score

Offers from Our Partners

Published: July 12, 2014

In my previous installment, we discussed some credit card myths that have been lingering on for a very long time, sometimes, as long as decades. Among these myths, there was one that can really hurt you:

Closing down credit card(s) will improve your credit score

This is why dispelling this myth is so important. Closing down your credit cards without giving it a good thought, might bring down your Utilization Rate (sometimes called Utilization Ratio or Debt to Credit Ratio). And Utilization Rate is one of the primary factors in determining your credit score.

Imagine this scenario. For the sake of simplicity, let's say you have five credit cards with combined $60,000 credit lines. Let's presume that your Debt to Credit Ratios can be described as follows:

Card #1: Credit line $10,000, Balance $1,000.
Card #2: Credit line $15,000, Balance $1,400.
Card #3: Credit line $8,000, Balance $1,500.
Card #4: Credit line $12,000, Balance $400.
Card #5: Credit line $15,000, Balance $500.

All in all, your current situation is pretty good. You have a low utilization rate across your accounts standing at very respectable 8% (creditors love to see you keep your UR at a single digit). Of course, the 16% UR for your card #3 would be a little too high for my comfort-remember, it is not only the summary of accounts that matters, but every individual account as well. Still, so far, it's not critical.

Now, let's say you wake up one day and decide to "improve" your credit situation by cutting the fat you don't need. In the end, every financial guru tells you not to have more credit than you really need, right? Logically, you presume that the easiest course of action would be paying off your smallest accounts and close cards number 4 and 5. Let's see if it does you any good, as long as the Utilization Rate is concerned.

Card #1: Credit line $10,000, Balance $1,000.
Card #2: Credit line $15,000, Balance $1,400.
Card #3: Credit line $8,000, Balance $1,500.

Apparently, your credit limits have been cut in half, yet you have only paid off $900. By dumping two credit cards with considerable credit lines, all you have "achieved" is a dramatic increase of your Utilization Rate. Now, it stands at 13% instead of 8%.

Is this Utilization Rate critical? Still no! It might not be high and alarming enough to creditors to reduce your score just yet. But the problem is, you do not stop using your credit cards. With every new purchase charged to the card-presuming that you do not pay it in full by the end of the grace period-you are bound to increase your Utilization Rate further and further. In the meantime, you have closed two generous credit lines that would be available to you to spread your purchases among several cards, thus keeping the Utilization Rate low.

The conclusion is simple: when you feel compelled to close an account, the easiest way might not be the smartest. There are several informal but important rules to follow.
  • Try to avoid closing your oldest accounts-that will affect your Average Age of Account, which, though a secondary factor in determining your score, still counts.
  • Try to avoid closing accounts with higher credit limits.
  • If your cards belong to the same family (like Chase or American Express) try to move the credit line from the card you want to close to another one in your arsenal. It is especially easy with Chase.
  • Try and keep your Utilization Rate both for an individual account and across all of your accounts below 10%.
Of course, the best course of action would be to avoid having credit card debt altogether and pay your charges in full every month. However, until you are ready to make this step, keeping your Utilization Rate low will help you gain access to more credit, which is incredibly important, as you do not always know when you might need it.

This is a post by Andy Shuman, a credit and travel expert who blogs at He writes and blogs during and between trips that he enjoys free of charge mostly due to creative use of credit card offers. He believes that credit cards are much more than just a convenient way to pay for a purchase, and that the benefits of responsible credit habits can go far beyond getting the best rates for loans and mortgages.

Andy is the author of bestselling books from Lazy Traveler Handbook Series available on Amazon. When he's not traveling, he lives with his beautiful wife and daughter in Brooklyn, NY.

Questions? Suggestions? Keep them coming!

Security Notice: All Applications utilize Secure SSL Technology for secure transmissions.

*See the online credit card applications for details about terms and conditions of credit card offers. Reasonable efforts are made to maintain accurate information. However all credit card information is presented without warranty. When you click on the " Apply Now " button you can review the credit card terms and conditions on the credit card issuer's web site.

Information in these articles is brought to you by Banks, issuers, and credit card companies mentioned in the articles do not endorse or guarantee, and are not responsible for, the contents of the articles.

Advertiser Disclosure: The card offers that appear on this site are from companies from which receives compensation. This compensation may impact how and where products appear on this site (including, for example, the order in which they appear). does not include all card companies or all card offers available in the marketplace.

Visit: to learn more about factors to consider when applying for or using a credit card. is the official site to help consumers to obtain their free credit report.