How does cancelling a credit card affect credit

Does cancelling a charge card affect your credit score? Consumer Reports Tuesday, August 4, 2015

Q. I received a notice saying that the annual fee on my American Express Rewards Gold Card will be going up and that I have a right to reject this change and cancel the card. Will canceling hurt my credit score? —B.D. Fairlawn, N.J.

A. Canceling a credit card can affect your credit score because it can increase your credit-utilization rate, which is the percentage of your revolving credit that you are using at any given time.

If you have, say, $25,000 in available credit across your credit cards and your current balances add up to $5,000, your utilization rate would be 20 percent.

If you cancel a card, that rate could rise because you’d have access to less credit. Generally, a lower utilization rate is better for your FICO score.

But the American Express Rewards Gold Card is a charge card. (There is no preset spending limit, and the balance needs to be paid in full every month.) Charge cards don’t affect your credit-utilization rate, so the impact of canceling the card is likely to be small.

Have you cancelled a credit or charge card and noticed a difference in your credit score? Comment below.

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Source: finance.yahoo.com

Category: Credit

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