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MONEY SMART KIDS
What Affects Credit Score
by Janet Bodnar

In a recent answer to a twentysomething reader who wanted to consolidate her credit-card accounts, you recommended that she keep open old accounts even if the balances were paid off. I always thought that having too much available credit could count against your credit score, even if you don't have any balances. Can you clarify this for me?

Be glad to. As far as your credit score is concerned, the amount of credit you have available is a factor, but not a major one. How you actually use your credit is far more important.

"Our studies show that although credit availability has some value in determining a credit score, it's nowhere near as useful in predicting future behavior as credit utilization," says Craig Watts of Fair Isaac, the company that compiles FICO credit scores.

The lower the percentage of available credit you use, the better it is for your score. As a benchmark, Fair Isaac prefers that you limit your balances to less than 50% of your available credit.

Even if you have a good credit score, Watts says it's possible that some individual lenders might not like to see too many open accounts. If you're applying for a mortgage, for example, a bank might tell you that your score is fine but ask you to close some accounts.

But that appears to be the exception rather than the rule. "In the overall picture of risk, it's better to leave accounts open," says Maxine Sweet of Experian, one of the agencies that compile individual credit histories on which FICO scores are based. That's especially true if you have a long credit history with no late payments or other bad marks.

Dear Readers: About a year ago, when I first expanded this column to include financial help for college graduates and twentysomethings, one of the first topics I covered was how much young people should expect to spend on various expenses. For housing, the recommended figure was roughly 30% of take-home pay.

According to Census Bureau information, that ballpark figure is pretty close to the mark. For budgeting purposes, it might help you to know that renters hand more than an average of 25.5% of their annual pay to their landlord. The range runs from a high of 27.7% in California to a low of 22.3% in North Dakota.