Which credit cards look better on your credit report?

Scott,

Let me start off by saying I love this website! I have a couple of questions. I have been told that certain credit cards (e.g. Capital One, Cross Country, and others like those) do not carry a lot of weight on your credit report. I was always under the impression that all credit cards carried the same weight. What is the truth?

My next question concerns paying them off. I would like to pay off my credit cards. Should I just pay them off and try not to use them? (I have tried this before and failed). Or should I just go ahead and cancel them.

I am really getting sick and tired of credit cards and I want to stop using them because they put too much pressure on me. Please advise.

Thanks,
Nichole

Great questions! It certainly does make sense that some credit cards will look better on your credit report. However, I would think that it depends on who’s looking. I’m sure that each bank has their own criteria for deciding how to “score” your report based on its contents. (FYI, you can get a free copy of your credit report each year from AnnualCreditReport.com.)

In fact, my suspicions of this are proved correct after speaking with Norm Magnuson, President of Public Affairs, from the Consumer Data Industries Association.

Scott: “Are there certain types of credit cards that look better on a credit report.”

Norm: “The lenders make that decision.”

Scott: “Can you tell if a secured or unsecured credit card is listed on a credit report, and does that affect your score?”

Norm: “No, they don’t designate secured or unsecured.”

Scott: “So all lenders have their own criteria.”

Norm: “Oh, absolutely. All 10,000 lenders develop their own underwriting criteria. Some, because of their interest rates, and other factors, are willing to provide cards or loans to consumers that might be less credit-worthy than others. With all of the competition out there, you ought to shop around for credit.”

Scott: “That’s a fact! The only way these banks are going to get new people is to steal them from other banks.”

Norm: “They do that by providing better terms and rates.”

Scott: “As far as your credit report goes, is it better to have higher limits or lower limits?”

Norm: “Limits don’t matter as much as utilization rate. Percent outstanding to credit limit. The ideal is about 33% to 34%.”

Scott: “Do you mean ideal for scoring?”

Norm: “Yes. The less credit you have outstanding, relative the limit, the better off you are.”

As far as paying off your credit card goes, that’s always a good plan. I do, however, recommend that you do not close your accounts. You may need them to make the banks compete for your business in the future. You don’t want to be at the mercy of any one bank.

I do understand that you’ve tried to do that in the past. That is, keep your zero-balance cards and not use them. You mentioned that this failed. I’m guessing you mean that you continued to spend on those credit cards after they were paid off. What I do is put all credit cards with a zero balance in a file. I call that file the “credit-card graveyard,” where I leave cards that are not intended for use. This helps avoid any sort of impulse purchasing. Later, if I decide that I really do need to use one, I just “exhume” a card.