Dear John: Many years ago, we were told that voluntary cancellation of credit cards would adversely affect one’s credit score. Do you believe that is still accurate advice?
I have several cards I don’t use and would like to cancel them, but I don’t know what the result would be. J.G.
Dear J.G.: The answer is that canceling credit cards could hurt your credit score, but not by a drastic amount.
Who knew!? I do it all the time, after racking up free travel and such, and my credit score is beyond excellent.
But someone who knows more than I do says it can hurt.
“Yes, canceling a credit card will probably hurt your credit score,” says Ted Rossman, industry analyst for CreditCards.com. “The main reason is that it will likely raise your credit utilization ratio.” That’s your the credit edit you’re using divided by your total credit limit.
Rossman gives this example: “For instance, if you owe $3,000 and your total credit limit is $10,000, your credit utilization ratio is 30 percent. That’s pretty good. But if you cancel a credit card with a $5,000 limit and still owe the same $3,000, now your credit utilization ratio is a much higher 60 percent.”
He said credit utilization is calculated per card and also across all of your cards. “It’s part of how much you owe, the second-largest FICO score category.” He said this comprises 30 percent of your FICO credit score.
Rossman says it’s better to leave the old credit cards open, with a zero balance. You might have to make a small charge every month so the card doesn’t get canceled for inactivity.
“If you’re being charged an annual fee on a card that you’re not using, ask the issuer for a product change” and switch to a card with no fee. “This should keep your existing credit line, your account history and often your same account number,” says Rossman.
While the bottom line is that cancelling a card won’t have a dramatic effect on your credit score, “every little bit counts,” says Rossman.
He added that with FICO, closed accounts continue to report positive information for up to 10 years, which continues to add to something called your “credit longevity.”
“However, [FICO’s] main competitor VantageScore removes them immediately, which shortens your average age of accounts,” Rossman says. That’s another important factor in credit scoring.
Boo! to VantageScore.
Now you know. And so do I.
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March 01, 2020 at 09:32AM
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Will canceling unused credit cards hurt my credit score? - New York Post
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