Originally Posted by GB
DaniaBchGirl I am not disagreeing with you about aged credit. I am disagreeing about aged credit with low utilization. Your score does not improve anywhere near as much as it does if you constantly use the card.
The original post is about cancelling a card... if its good or bad. So that is what I am trying to focus on. Any other details I used were to help in the understanding that there are several factors involved in good credit usage. What I mean by "Low Utilization" has nothing to do with the frequency of use. "Low Utilization" in credit terms relates to the percentage of debt a person carries. Low utilization means to keep your BALANCES below 30% of your available credit.
Credit-utilization ratio is key
First, canceling a card could upset your credit-utilization ratio, the second most heavily weighted category in Fair Isaac's credit scoring algorithms. For example, assume you have three cards with total available credit of $20,000. Assume further that your outstanding balances total no more than $6,000 of that available credit at any one time. Since creditors like to see a credit-utilization ratio of 30 percent to 35 percent or less, you're in good shape. Now, assume that you cancel a card with a zero balance and a $10,000 credit limit. Suddenly, your utilization ratio jumps to 60 percent, and your credit score drops.
Furthermore, he says, canceling that card could result in a double whammy to your credit score, "because each card is scored individually, and then all your cards are scored together. (If) you've just canceled the card with a zero balance, (you've) lost a great individual score." Regardless, if you still want to cancel a card, he says, "make sure to pay down your other balances to keep that rate in line."