An Easy method to harm your credit score!

Credit card transactions reflect the bulk of your credit score.  There is no doubt that canceling a credit card, for any reason, will lower your credit score.  Still, if you are not using the card, but you have to pay the fees anyway, what prevents you from canceling?

Canceling credit cards greatly reduces your available credit assets.  You need to consider this before canceling any cards.

Let’s say you have credit cards with a total of $10,000 credit availability but you have used only one of those cards for a total of $3000.  You have used 30% of your total credit availability, leaving you at 70% total credit availability.  Now you cancel a credit card with a $2000 limit.  All of a sudden, without spending any additional money, you have reduced your credit availability to 50%.  And, you’ve reduced your credit score by canceling a card.  Should you decide you really need that extra 20% credit availability, you’ll have a more difficult time getting it with a lower credit score and a cancellation on your record.

Also, you have just impacted your credit ratio.  Prior to canceling that card, your ratio sat at 30%.  You were only using 30% of your available credit.  That ratio has now jumped to 50% just by canceling one card.  Credit card companies might interpret a ratio this high as a risk against future payments.

It is a better idea to hang on to your credit cards.  It is even better to keep them in use.   You can do this by making nominal charges against them.  In part, your credit score is determined by how long you keep your credit cards.  The longer the period of time you hold a card, the longer your credit history is extended.  If you have a long credit history, you are considered a better risk by lenders in comparison to having a shorter history.

If you are considering buying a car or a house, or borrowing money for any purpose at all, canceling credit cards will have a negative influence on your credit report.  At the very least, keep the cards you are thinking about canceling until after your loan transaction is finalized.

If you have superstore, department store, or gasoline retailer credit cards and are considering canceling them because you can use your major credit cards instead, reconsider.  Most of these cards do not charge fees and having a varied combination of credit cards is looked upon as favorable by the credit bureaus.