Your balances owed account for thirty percent of your credit score, according to the Fair Isaac Corporation. Part of this category includes the ratio between you debt and your available credit.
Debt to Available Credit Ratio
You calculate your debt to available credit ratio by dividing your outstanding balances on your credit cards by your total credit limit. For example, if you have four credit cards with a total credit limit of $15,000 and $4,500 in credit card debt, you would be using 30 percent of your available credit. MSN Money recommends keeping the ratio below 30 percent.
Effects
Canceling credit cards with high credit limits can drastically increase your debt to available credit ratio, which will lower your credit score. Continuing the example, if you closed one of the four credit cards that had a credit limit of $6,000, your available credit would drop from $15,000 to $9,000 and your debt to available credit limit would rise to 50 percent ($4,500 out of $9,000).
Considerations
When you close a credit card, you stop generating credit history from that account. If you always pay the card on time, even if you don't have to make a payment because you have no balance, you will continue to improve your payment history, which accounts for 35 percent of your credit score.
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