Will canceling some of my credit cards effect my credit score?

Question

I currently have four credit cards and I only use one of them. I am considering canceling two of the cards I never use, but I want to make sure that this will not hurt my credit score.

Answer 1

As mentioned above, there are a lot of good answers listed here. To reiterate, it will have a positive AND negative effect on your credit becuase it plays with factors of the FICO equation. Part of the FICO equation looks at how many creditors you have, part looks at how old the active creditors are, and part looks at how much credit you've been extended versus how much you've actually used. No one in the general public knows 100% what the actual FICO eqution looks like because it is considered proprietary information of a very classified nature. Fair & Issac will not release the full equation fearing that nefarious people would be able to manipulate it to their benefit and screw over a lot of companies while still maintaining an 820 score. In 2000, the high courts forced Fair & Issacs to release generalized information on the equation...the courts argued that people's misconception about their credt and what affects it is needlessly hurting even good credit people's scores.

Done with the info/history lesson...here is the affect it will have:
Cancelling older cards will hurt your credit because it is cancelling long established accounts, regardless if the cards cancelled have balances or not.

Cancelling the cards increases your debt ratio (amount of credit available versus how much you've used). The closer you are to your available credit roof, the lower your score will drop.

The score will look to improve on eliminating the number of creditors, but you're hitting the American average of 4. If you have other store cards, then the closer you get to 4 creditors, it will help your score a tad.

As many have said, what you want to do is not a bad thing but could have a slight, temporary negative impact on your score. If you chose to cancel a card, aim for the newest cards and the cards with the smallest available credit.

**Possible idea that may have the least impact on your score**
Assuming your credit is good because you have been paying your bills on time. Total up all the available credit all four cards are giving you. If you're comfortable with that available amount, call your two oldest cards and ask get them to respectively increase your credit limit. If they increase to an amount you're comfortable with, cancel the newest two. This way, your available credit limit stays the same, your creditor number drops and your debt ratio is minimally impacted. Thus, your score should be only minutely affected.

Answer 2

Here is something to consider that nobody has mentioned....as this is a variable that will affect your decision. It can help you or hurt you depending on where you stand in the credit game.

Open lines of credit that are not being used still count toward the "potential" you could spend up to at that time.

Lets say your debt to income ratio is at a level 50% right now. You have 10 open lines of credit/loans out there. 3 of them have a zero balance and aren't being used, and those have a credit line of 2k each.
This little extra 6k of POTENTIAL credit/debt you could access and rack up is taken into consideration by creditors when applying for a new loan. It takes away from your score to have them hanging open during the score calculation for a new loan.
NOW
Before you close any of those, make another decision. Creditors like to see LONGEVITY or credit history with a company. So start with cards and accounts (as someone mentioned earlier) that either don't report to the bureaus or haven't been open as long as others. The longer of a history you have with companies, the longer at the same address, the longer run of on time payments showing up is all good to them!
SO THEN
If you're pretty sure you won't be using or don't need these dormant accounts it will sweeten the deal in the eyes of potential creditors by upping your score a little bit.
NOTE*
New information on credit reports can (give or take) 30 days to appear so plan ahead if it's an important loan that you need to up your credit score for, meaning, close them several weeks in advance of a new loan application.
-------THE BOTTOM LINE-----------------
Lets face it, Creditors and lenders are in the game to MAKE MONEY. If you have NO credit card accounts or balances on them, this means you are not paying INTEREST. So, how can they make any money off of you? It's actually beneficial, in a twisted kind of credit way, to keep some balances on cards....to show that they CAN make some money off of you...to establish a PAYMENT HISTORY so they can have information from which to base your re-payment behavior and thus, establish a CREDIT SCORE

Answer 3

JFAD and Lauren X both have excellent answers.

Before you make your final decision, I suggest to go to http://www.myfico.com and look through their consumer education information. This is the home site of the folks who developed the FICO scoring system, so if anyone knows what will effect your score, they will...right?

They recommend that you keep 3-5 open lines of credit, so your 4 cards are in order with this logic. Just keep an eye on the credit limits and make sure they don't keep jacking them up to huge amounts.

As Lauren X points out, having a lot of unused credit will really scare off potential lenders. If you only make $35k a year, but have $200k in available credit card limits, they are not likely to grant you a large loan (for mortgage or car). This is reflected by the credit bureau from a low credit score.

Now, if the purpose of closing them is because you don't trust yourself to not overspend, try getting the credit limit lowered to
$200. That will at least preserve your credit history on the card.

If you close a card, obviously get rid of cards that charge an annual fee, or have a high interest rate. All things equal, get rid of the newest cards first. Only cancel once card at a time, and then wait 3-4 months before canceling more. DO NOT cancel any cards if you plan to get a loan soon, as it WILL lower your credit rating. But after 3-4 months it usually will restore itself.

Answer 4

If you're intent on canceling a card, cancel a younger card or cancel one on which the credit card issuer doesn't report the credit card limit. Some credit card companies don't report your credit limit. You can find out which ones by getting a copy of your credit report. If you do cancel a card, you can compound your error even further by canceling the card that you've had the longest period of time and on which you've been making regular payments. By canceling an old card, the length of your credit history on open accounts will grow shorter. Both the FICO score and the VantageScore http://www.bankrate.com/brm/news/debt/debtmanageguide/vantage-scores1.asp?prodtype=pfin credit-scoring formulas take into account the credit histories of even closed accounts in assessing how long you've been managing credit. However, that history will finally disappear from the formula when a credit bureau of its own accord removes old credit account information from your credit file.

The credit bureaus Equifax, Experian and TransUnion) cautions that the scoring algorithm is weighted such that if you maintain that older account, you're better off because it goes to a pattern of payment history. Nevertheless, if it's an older account that you don't use, and you're paying fees on it, you're probably better off closing it out for privacy rather than credit score reasons.

Though canceling a card probably will not increase your credit score, holding on to one has a number of advantages. For one, Fair Isaac and VantageScore look for a healthy credit mix, a mix that might include a mortgage loan, a car loan, maybe a store card or two, three or four MasterCard or Visa cards and a home equity line of credit, or HELOC, for example.

Answer 5

It might, because then the amount you use on the one credit card becomes a higher percentage to the amount of credit you have available. Try to never use more than half the credit you have available. If it isn't costing you anything to have the two cards, I wouldn't worry too much about them. Having a credit card for an emergency isn't a bad idea, even if you have insurance. Just remember that that is why you are keeping them-----an emergency.

Answer 6

Too many card is not good, however be careful which ones you cancel, because a credit card you've had for a long time can actually help your credit score.

Answer 7

It depends on your current credit situation. If you have to much credit available that you do not use, I would recommend closing those cards because it should increase your credit score in the long run.

Answer 8

only in the short term. Also make sure that the balance on your one card is less than 25% of your credit line. If it is not, then it is worth keeping another card so that your balance to credit ratio is smaller.

Answer 9

It could possibly help. Having to much credit available to you can sometimes be a bad thing. I know someone who at one time could not get a car loan because she had to many credit cards even though they had no balance on them.

Answer 10

No it should not. If anything, too many open lines of credit can affect creditor decisions negatively. They assume, by and large, that you will use it to determine if you can pay them back. Plus in the long run, the lack of easy and expensive credit, is almost never a plus.