Closing Credit Cards?

Having a good credit score is good for so many things: getting a lower rate
mortgage, getting good deals on credit cards and also for your hunting a
job.

Some people tend to cancel their old unused credit card accounts under
a wrong impression that getting rid of fat in your wallet might improve
your credit score.

Instead of closing out old accounts, leave them be. The FICO calculator
looks at your credit utilization which is measured by the ratio between
your credit limit and the amount of balance on your cards. This should be
a fraction less than 1. As it approaches 1, you max out your cards.

So, closing a old credit card reduces the amount of your available credit
without paying down the amount of debt you have. This makes it appear
that you are getting closer to maxxing out your cards and hurts your
FICO score. For example, if you have $10,000 of available credit on
several credit cards and owe a total of $1,000, you have used 10 percent
of your available credit. However, if you close accounts with $9,000 of
available credit, you now have used 100 percent of your available credit,
and that isn't good for your credit score.

Sometimes, consumers seek to close out old unused cards with high
interest rates just to avoid the possibility of using them. This is called 'a
smart consumer point of view' but not a 'smart credit point of view'. Even
if you want to cancel (may be just to have a lighter wallet or less number
of things to worry about), you might be better off to close the newer cards
which is not carrying your long-time credit history and thus are less
important from the point of view of the FICO scoring system.