Credit scores help potential lenders assess the risk of lending you money. Your credit score reflects your payment patterns, placing the most emphasis on recent information. The overall amount of your debt is also reflected in your credit score. Canceling credit cards can have a negative or positive effect on your credit score, depending on specific credit score factors.
Too Many Credit Cards
If the risk factor section of your credit score analysis indicates that you have too many credit cards, then canceling one or more cards that you do not use should not have a negative impact on your credit score. The risk factor statement "too many credit cards" means that the number of open credit card accounts is negatively affecting your credit score.
Utilization Rate
Consumers who have high balances on a few credit cards can hurt their credit score when they close any credit card accounts. Closing one of a few high balance accounts increases the utilization rate, or balance-to-limit ratio. A high utilization rate can indicate credit risk to a potential lender. Calculate your utilization rate by dividing the total combined balance on all of your credit cards by the total combined balance of your credit card limits. If you still have a significant amount of open credit, then the effects of canceling a credit card on your credit score will be minimal.
Credit Score Factors
Credit score factors are the elements that contribute to your overall credit score. The types of accounts listed on your credit report, your total amount of debt, the age of the accounts listed and the number of late payments are the primary elements that affect the calculation of your credit score. Understand all of the factors that contribute to your score if you wish to improve it. For example, payment history accounts for 35 percent of the total calculation of your credit score, length of credit history accounts for 15 percent and outstanding debt accounts for 30 percent. Canceling a credit card that you've had for a long time and which has a strong payment history can impact your score more than increasing your utilization rate. Canceling one credit card can impact your score for a short time, typically up to six months.
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