If you're thinking about closing a credit card account that you aren't using or have more than one, you may have wondered if it's a good idea to do it. Some people think it will raise their credit score.
Here is why you don't want to do it. When lenders are making a decision as to whether to lend you more money they will look at how much credit is available to you now – they call this the utilization ratio.
If you have 5 cards now and they each have a limit of $ 10,000 or so each and you owe about $ 6000, your rate would be 12%, which is good, from their viewpoint. If you were to close 4 of the credit card accounts then your utilization ratio would jump to 60% or so. This would be bad. Now you haven't even used the cards but it looks like you have which means you might look like you've overextended yourself.
You want to keep this ratio at 50% or below. So take a look at your credit cards and if you really don't want any of them don't close the accounts. Take the cards you don't want and cut them up. This way you keep the accounts open and are not using them to rack up more debt.
If you only have one card it would not be a good idea either, since you may need that credit card account for emergencies. Especially if you don't have an emergency fund. Experts right now are advising to use your credit cards as necessary and make the minimum payment and conserve your cash for emergencies.
Your credit score or FICO score, report and history should not suffer if you continue to keep your credit cards. The lenders also look at how long you've had your cards and the longer you've had them the better it will be in terms of your credit score and history.
Credit cards, as much as they can be a problem, can often come in handy in emergencies and should be given some leeway for saving one from extreme hardship.
So closing a credit card account won't raise your score but could lower it. Only do so if you have no other option. If you absolutely have to cancel one of your cards, then cancel the newest one first, of course, that has the shortest history to lessen the effect on your credit report.