Can Canceling a Credit Card Hurt My Credit Score?

Can Canceling a Credit Card Hurt My Credit Score?
One of the most significant factors in your credit score
besides your payment history is how much you owe in
relation to how much credit you have. This accounts for 30%
of your credit score. However, the amount you owe is not
simply the total amount of debt, it's your debt in relation
to how much credit you have. This is referred to as the
credit-utilization ratio. The credit-utilization ratio is a
key factor in determining how you manage credit. The lower
the ratio, the more you are viewed as a responsible credit
user by creditors. Canceling a credit card can
significantly raise your credit-utilization ratio and in
turn lower your credit score.

For example, let's say you have $10,000 in credit on 3
credit cards and have a total amount of debt of $2500. Your
credit-utilization ratio would be 25%. If you cancel one of
your cards that has a zero balance and a credit line of
$5000, your credit-utilization ratio would increase to 50%.
The higher ratio would lower your credit score.

If you are having problems with debt, then canceling a
credit card can help by eliminating the temptation to
increase your debt. While canceling the credit card may
lower your score in the short term, the benefits of not
increasing your debt and paying down your current debt will
go a long way to helping increasing your credit score in
the future.

Additionally, if you do decided to cancel one of your
credit cards to help you better manage your debt, cancel
your newest cards first in order to avoid getting doubly
dinged on your credit score. Canceling older credit cards
can hurt you because the length of your credit history
matters in calculating your credit score. If you cancel
your older credit cards first, then you decrease your
credit history. However, if you are not using the older
card, then canceling that card can be beneficial if you are
paying an annual fee. You'll save the annual fee and also
not have a credit card around that you're not using, which
might help protect your privacy and the potential for theft.

Remember, your credit score is a reflection of how you
manage your credit. By adopting good credit and money
management skills, you won't have to worry about your
credit score. Pay your bills on time, don't be too liberal
with the amount you spend on your credit cards, and be
aware of just how much debt you owe will go a long way in
managing your credit.

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For more ways on how to save money and manage your debt, go
to http://www.CreditManagement101.com - a website dedicated
to issues concerning debt and credit management.
At http://www.CreditManagement101.com you'll learn about
responsible credit management, your credit score, debt
management plans and credit counseling. Also find ways to
save your money by maintaining a livable budget that
reflects your means.