Can Canceling Credit Cards Raise Your Score?

Credit cards mostly come with a negative reputation due to the high interest costs and temptation of racking up debt over months and years. So the logical conclusion that some people have is that canceling your credit card is a positive thing on all fronts. However, if you want to raise your credit score, think twice before canceling a card account.

Cancelling Credit Cards

A credit card account is canceled in one of two ways. Either the creditor cancels the card due to issues with the account or you call to voluntarily cancel. In either case, the credit card itself becomes defunct and you can no longer use it for purchases or transfers. Even after it is closed, information about your credit account stays on your credit report for seven years.

Does It Raise Your Credit Score?

Canceling a credit card does not usually raise your FICO score. However, if the act of closing the account lowers your credit utilization ratio (the amount of debt used divided by debt available to use), then it might actually cause the score to drop. For instance, say you have two credit card accounts open one with a credit limit of $2,000 and $0 of credit used while the other has a credit limit of $3,000 and $2,950 used. The total credit utilization ratio is 59 percent (2,950 divided by 5,000). By closing out the first account the utilization ratio rises to 98 percent (2,950 divided by 3,000). If you have one card with a zero balance, the score will likely just stay about the same after cancellation.

Alternatives

If you want to raise your score, instead of closing the account make it a priority to manage the account more responsibly. Reduce the balance to as close to zero as possible and keep it there consistently. Ideally, the credit used shouldnt go over 30 percent of the limit. Dropping the credit utilization ratio and paying off the amount you charge each month gives you a better chance of raising your score. Also, keep in mind that the older the credit card account is, the better. The length of credit history makes up 15 percent of your score.

Credit Card Tips

If you want to cancel credit cards because do not use your account and do not wish to any longer, simply cut it up and monitor it online regularly. You can always maintain an open card account without having the card at your disposal. If you decide to make regular charges just to keep the account active, place an order online with the card then schedule a payment to cover the balance charged.