Will canceling credit cards lower your score?

Credit cardWhen we posted last week addressing what is a good credit score and how to get one, we got lots of feedback. It seems that a lot of people these days are concerned about their credit scores -- not at all surprising in these times. We also noticed that a lot of you want to take steps to improve your credit (good for you!) but still have some questions. One issue in particular stood out: "I would like to get rid of my cards since I have like 10 of them... The ones I want to get rid of are also some of my oldest accounts," one reader writes. "Would this be a good move?"

It's a good question, and one we suspect many more of you are asking. So we went back to the experts. Here's what Craig Watts, public affairs director for FICO, has to say on the topic.

Closing a card, even an old one, has no impact on the length of your credit history. Your credit score includes both open and closed accounts, the latter of which stay on your credit report for up to a decade. So say you close your first-ever credit card, one you've had since the Reagan administration, this week. That won't change the length of your credit history in the slightest. Another perk: If you were a good customer and paid on time every month, that bill-paying diligence will still count in your favor. Of course, the flip side of that is that you can't erase a history of late payments just by canceling a card.

Now, closing a card -- whether an old or a newer one -- could make your credit score drop for reasons we discussed last time. A refresher: your credit is determined in part by what the experts call a utilization ration, which means what percentage of your credit limit you use. If you have a $4,800 balance on a card with a $5,000 credit limit, that is a bad utilization ratio. If you only have a balance of $500 on that same card, that's a good ratio. But the credit bureaus don't just look at your per-card ratio; they look at it in aggregate. In other words, they add up all the credit you have available and all the money you owe. So if you close a card without paying down a balance somewhere else, that ratio is going to creep higher -- and possibly into dangerous territory if the card or cards you cancel have high credit limits.

This doesn't mean you shouldn't close a card that you don't use or no longer meets your needs. It just means you should pay down your balances first, then call your card issuer to cut the cord. Or, if you have cards with lower credit limits, close those instead of high-credit-limit ones. But the bottom line is that closing an old account has no more impact on your credit score than closing a new one.
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