One of the most significant factors in your credit score besides your payment history is how much you owe in relation to how much credit you have. This accounts for 30% of your credit score. However, the amount you owe is not simply the total amount of debt, it's your debt in relation to how much credit you have. This is referred to as the credit-utilization ratio. The credit-utilization ratio is a key factor in determining how you manage credit. The lower the ratio, the more you are viewed as a responsible credit user by creditors. Canceling a credit card can significantly raise your credit-utilization ratio and in turn lower your credit score.



For example, let's say you have $10,000 in credit on 3 credit cards and have a total amount of debt of $2500. Your credit-utilization ratio would be 25%. If you cancel one of your cards that has a zero balance and a credit line of $5000, your credit-utilization ratio would increase to 50%. The higher ratio would lower your credit score.

If you are having problems with debt, then canceling a credit card can help by eliminating the temptation to increase your debt. While canceling the credit card may lower your score in the short term, the benefits of not increasing your debt and paying down your current debt will go a long way to helping increasing your credit score in the future.

Additionally, if you do decided to cancel one of your credit cards to help you better manage your debt, cancel your newest cards first in order to avoid getting doubly dinged on your credit score. Canceling older credit cards can hurt you because the length of your credit history matters in calculating your credit score. If you cancel your older credit cards first, then you decrease your credit history. However, if you are not using the older card, then canceling that card can be beneficial if you are paying an annual fee. You'll save the annual fee and also not have a credit card around that you're not using, which might help protect your privacy and the potential for theft.

Remember, your credit score is a reflection of how you manage your credit. By adopting good credit and money management skills, you won't have to worry about your credit score. Pay your bills on time, don't be too liberal with the amount you spend on your credit cards, and be aware of just how much debt you owe will go a long way in managing your credit.