Originally published March 9 2005
Canceling old credit cards may hurt your credit rating
by Mike Adams, the Health Ranger, NaturalNews Editor
Canceling old credit card accounts will at least almost never help your credit rating, and can even have a negative effect, says Ryan Sjoblad of Fair Isaac Corp. This is due to balance-to-limit ratio. With various open credit card accounts, you have more available credit. Your credit rating is in part based on the percent of credit available to you that you are utilizing. It's always best to try to keep this percent under 50%.
Q: How or should we cancel old credit cards that we don't use?
We have about eight cards, use only three, and want to apply for a new cash-back card.
A: It sounds like you're asking me if closing your old accounts will help you get a new card by improving your credit score.
Canceling credit card accounts "will almost never help your score and will probably have a negative effect," said Ryan Sjoblad, spokesman for Fair Isaac Corp., which developed the industry standard FICO credit score.
For example, let's say you have two credit cards, each with $2,500 limits, and a balance of $2,500 on one card.
At that point, you have a balance-to-limit ratio of 50 percent ($2,500 divided by available credit of $5,000).
If you close the old, zero-balance account, all of a sudden you're using 100 percent of your available credit ($2,500 divided by $2,500).
Inactive accounts with black marks, such as late payments, must be purged after seven years.
One reason to consider canceling a credit card you don't use is to eliminate the chance that the account will be used fraudulently.
Still, Sjoblad said, thieves likely won't be able to tap old accounts, anyway.
Nevertheless, if you're concerned, "Cut up your card and forget about it," he said.
If you still want to close an old account, but don't know where to call, you could order your credit report from one of the big credit bureaus.
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