Should I transfer the credit limit to another card before closing my credit card?

Credit Card

 

 

Transfer Your Credit Limit Before Closing Your Credit Card

In my opinion, you should.  Remember we discussed so many times on what makes up your credit score

Credit score is based on 5 organic elements:

  1. Payment History – make sure you pay on time
  2. Amount Owed – stay below 70% utilization of your credit
  3. Length of Credit History – keep 1-2 long history credit cards
  4. Type of Credit Used – mortgage and auto loan usually have hight credit score, do not be late
  5. New Credit – do not have too many credit inquiries in the same period

Even though you pay your bills in full each month, your utilization rate is reported to the credit bureaus.  They consider both utilization on per account and overall basis. 

For example, if you have a $1000 credit limit Chase Freedom card and $6000 credit limit Chase Sapphire Preferred card.  Every month you use approx. $2000 on credit cards.  If you use $500 on Chase Freedom, you are using 50% of your credit limit on Chase Freedom.  The rest of $1500 on Chase Sapphire Preferred, you are using 25% of your credit limit on Chase Sapphire Preferred.  In overall basis, you are using 28.57% of your credit between both cards.

Chase Sapphire Preferred has an annual fee and Chase Freedom does not.  Let’s say you decide to close Chase Sapphire Preferred, you should call Chase customer services to transfer your $6000 credit limit from Chase Sapphire Preferred to Chase Freedom.  By doing this you have 2 benefits:

  1. You increase your credit limit on Chase Freedom card without pulling your credit report.  (Too many inquiries on your credit report will affect any credit or lending decision.)
  2. Now you are using $2000 every month on a credit limit of $7000, which is 28.57% utilization rate.

Although after you pay in full, the credit score will rebound, it still affects any credit or lending decision.  Sometimes may result in a less favorable interest rate on a loan. 

 

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