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4 Credit Card Cancellations that Negatively Influence Your Credit Report

By Janet Lacey
Published: Wednesday, November 25th, 2009

If you are one of those people who are constantly into monitoring your credit and debt, then you must have come across advice telling you that closing extra credit cards will increase your credit score. Many people may also tell you that canceling a delinquent credit card will get the delinquency deleted from your credit report. These and certain other myths regarding credit cards and their relationship with a person’s credit score are making people ruin good credit reports and making bad ones worse. If you do not want to get into the same trap, then check out the information given below about how canceling different credit cards may negatively influence your credit report.

Canceling a credit card with balance

Effect on your credit report: Canceling a card that still has balance on it is the worst credit card offence that you can inflict on your credit report. Canceling a credit card with balance not only decreases your available credit limit (which directly brings down your credit score) but also shows up as a delinquency on a card that you have maxed out. Even if you owe $5 on a credit card with a limit of $5000, it will still show as a maxed out card because when you cancel the card, the credit limit on that card becomes 0. If you really have to cancel a card, make sure you do it after clearing all balances.

Canceling a credit card with available credit

Effect on your credit report: Your credit score takes into consideration a factor known as credit utilization. This is the ratio of total used credit versus total available credit. The lower your credit utilization ratio, the higher will be your credit score. When you close a credit card that has available credit, then your total available credit goes down while your credit usage remains the same. This in turn increases your credit utilization ratio and brings down your credit score. To have a hale and hearty credit report, a credit utilization ratio of 33% is considered to be optimum.

Canceling your oldest card

Effect on your credit report: Another factor that is taken into consideration when your credit score is calculated is your credit history. Needless to say, when you cancel your oldest credit card account, you cut short your credit history which adversely affects your credit score. On the other hand, a credit report showing proper management of different kinds of credit lines over a long period of time will lead to a better credit score.

Canceling your only credit card

Effect on your credit report: Having different types of credit will help in boosting your credit score whereas having just credit cards or just loans on your credit report will lead to lower credit scores. Your only credit card adds variety to your credit profile and helps you in getting a better credit score. This is one card that should always be maintained in good health and never be canceled.

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