Impacts of closing a credit card
Building credit and using credit cards responsibly can be a challenge for anyone. Representatives from the National Foundation for Credit Counseling recently spoke with USA Today on some of the more obscure ways you can impact your credit.
The average number of credit cards a consumer carried peaked around 4 in recent years, but many Americans have decided to cut down the number of accounts they maintain. Many people might not realize that canceling a credit card can have an immediate and substantial impact on their credit in two different ways.
First, roughly 30 percent of your credit score is comprised of the ratio of credit used to total credit available. Even if you have not used a credit card recently, its limit still adds to your available credit and boosts your score. Closing while still holding debt on another card can cause a jump in that ratio and a drop in your credit score.
Second, though a smaller factor than usage, credit history still amounts for around 15 percent of a credit score. This does not just mean how long you have been using credit cards, but also how long you have maintained your current accounts. Closing an older card can impact your score substantially more than closing a newer one, so be certain the newer card is worthwhile if you want to keep it.
The other factors that go into a credit score are new credit activity, the different types of credit you use and, most importantly, your payment history.
5-7-2012
by Chris Martin
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by Dan Seitz
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by Neil Hayashi
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