I received an email from John, a reader, about the effects of cancelling one of his old credit cards on his credit score. So, I decided to post a number of “fast facts” about credit scores. In this post, I will address John’s question about credit cards and his credit score.
The quick answer to this question is that you probably do not want to cancel the old credit card that you do not use. There are two main reasons for this. One of the ways that your credit score is calculated is through your credit history. The credit cards you have all show your payment history and the longer it is, the better it is for your score. So, cancelling an old credit card could hurt your score because it will shorten your credit history.
Another portion of your credit score is calculated through a ratio that compares the amount of credit you use and the amount of credit available to you. It is usually better for your credit score if you have a smaller ratio of used credit to available credit. This means that if you cancel that credit card for which you have a certain credit limit, it lowers the amount of credit that is available to you which in turn raises the ratio.
At the same time, you don’t want too much available credit so don’t go signing up for a bunch of credit cards. Feel free to comment with any specific questions you have about credit scores and I’ll be sure to cover that topic in a future post about credit scores.