Closing some of my credit cards makes sense to me. Am I correct?

[Nicole Heasley Beitenman]

Hi BP! 

I was talking to a friend of mine about credit. He says that each person is worth a certain amount of credit based on their income. 

Here was his example: Say you make $70k per year. You are then worth $200 in credit. If your house has a $100k mortgage, your car loan is $20k, and you have a personal line of credit worth $80k, you're done. It doesn't matter how high your credit score is; you are maxed out until you increase your income. 

Based on this, I would like to close some of my store credit cards. I took several out in college--Kohl's, Target, JCP, Macy's, Old Navy (I think that one is close), and NY & Co. I also have a Chase Visa and a Citi Mastercard. The only card with a balance is the Mastercard, and the only store card that I've found to be worth the incentives is the Kohl's card. The rest are used maybe once a year, if that. If I'm going to have credit taking up my limit, I'd rather it be credit I can use towards another deal. 

I know my credit will take a hit if I close these cards, but I don't see that hit being large, and I think my credit would recover quickly.

Is any of this accurate? 

TIA! 

[Andrew B.]

Closing your open credit lines would reduce you credit score. Credit score is based on several factors: On time payments, length of credit history (average # of years each account is open), credit utilization (what % of your open credit lines are you using), total available credit, recent inquiries, and new accounts.

I'm going to simplify this somewhat, but if you have 2 credit cards and both have a limit of $10k, you have total available credit of $20k. If you charge $1k, your utilization is 5%. One card has been open for 10 years, and the other has been open for 1 year, your average credit history is 5.5 years.

Now if you cancel the 10 year card, your available credit goes down to $10k, your utilization doubled to 10%, and your credit history dropped from 5.5 years to 1 year. Those are the 3 items that have the most impact on your credit score. Now tell me, do you think its a good idea to close those open accounts?

What your friend may have been trying to explain was your debt to income ration. For example, when you take out a loan the bank looks at your monthly obligations, (car loan, student loans, mortgage, etc.) They add up all those obligations and divide by your income. If your current debts take up 90% of your income, they are unlikely to give you a loan. In that case, you would want to payoff some loans or increase your income.