(Originally posted 11/5/08)

The average American now has eight credit cards in his or her wallet. I’ll be the first to admit, I’m one of them. Over the past several years of easy credit and 0% introductory rates, people were applying for more credit cards than ever. The result is that many people have several credit cards that aren’t being used at all. So, should you cancel these old and rarely used cards?

The short answer is no. More often than not, canceling an old credit card will hurt your credit more than help it. The main reason that this is the case is that 15% of your credit score is determined by the age of your credit accounts. Generally, an average age is used for all of your open credit accounts when determining this portion of your score. Canceling one of your older credit cards will decrease the average age of your open accounts and negatively affect your FICO (Fair Issac Corporation, the folks that developed the first credit ratings in 1958) score. If you ever feel that you must cancel a card, try to cancel one of the ones opened recently.

The other effect that canceling your credit cards has on your FICO score has to do with the ratio between the balances on your credit cards and your total available credit. You want to keep this ratio as low as possible. Generally, keeping this below 30% is advised. When you close a card, that available credit is no longer counted in this ratio. Automatically your debt ratio will do up without your having to spend a penny.

If you do decide to cancel one of your credit card accounts, don’t just cut the card up and think you’re done. It is very important that you call the 1-800 number on the back of your card and ask to close the account. It is also a good idea to specify that you want your credit to reflect that the account was closed at the cardholder’s request. This usually isn’t a problem, but it is better to be safe than sorry.

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