Capacity & Your Credit Score

It seems no matter where you turn lately, you are hearing or reading something about the new Credit Card laws!  With all of the changes being made, it didn't take the big credit card companies long to figure out that the cards that have been issued to their customers who aren't carrying balances are not going to make them any money.  Now we are hearing that these big card issuers are starting to close the accounts of these customers.

Why is this important to you as a consumer?  Your credit score is comprised of many different factors.  These factors include things such as:  how much credit you have had; what types of credit you have (mixture of installment loans like car loans, mortgages, etc & revolving accounts like credit cards & lines of credit); how you have handled your credit (have you charged up to your available limit on one of your card(s); have you made your payments on time); and how long you have had credit.

So, it got me to thinking...if some of the credit cards that I have had for a long time (but don't currently use) get closed on me, how is that going to affect my credit score?  How will it affect my CAPACITY?

Here are 2 examples of capacity:

1) Let's say I have 6 credit cards open under my social security number and have had them all for 5+ years. The total available credit that I have is $50,000. I typically carry balances of less than $5,000 total. My available capacity is 90%.  Change the typical balances that I carry to $10,000, capacity = 80%

2) Let's say that of those 5 cards, I have only really used 2 of them for the last 3 years and the companies decide to close the 3 that I haven't been using. Now my total available credit has shrunk to $20,000 and my typical balances are still $5,000. My available capacity is now 75%.  Use this scenario with the typical balances that I carry at $10,000, capacity = 50%

Capacity affects a person's credit score.  If you have used up all of your available credit, where would you turn to help you out in a true bind?  A good rule of thumb to follow to help you create and maintain a good credit score is to keep your available capacity at more than 70% ~ to help build a great credit score keep it over 90%!

If you are concerned or have questions about your capacity or your credit score, set up a time to talk to one of our Financial Service Representatives.  They will help you analyze your credit report and educate you.  Capacity is only one aspect of what makes up your credit score ~ look for more in the future!

Jill Berdan - Sleepy Eye Branch Manager