Cancelling your credit card does not boost your credit score
NEW YORK - Is your credit score, that three-digit number that purports to measure the health of your credit history, not as high as you’d like it to be?
If your credit card spending is out of control, you may be tempted to cancel some of your cards so that you can elevate your score. But simply cutting up the card the old-fashioned way, rather than canceling it, may be the better way to go.
According to Bankrate.com, canceling your credit card probably won’t help your credit score. In fact, it could really hurt it. Here’s why:
If you cancel a card, your “credit-utilization ratio” is altered. Say you have five open credit-card accounts that add up to a total available credit line of $50,000. Your total outstanding balance on all five cards combined is $10,000.
Thus, your credit-utilization ratio is 20 percent. But if you cancel two of those cards, bringing your total available credit line down to $25,000, the ratio jumps up to 40 percent. And that can make your credit score go down.
- Source: Marschall Loeb, Marketwatch, via the Monterey Herald, Nov. 28, 2006
