Spring will soon be here, and it is an excellent time to begin “Spring Cleaning.”  One of the things that I like to do is lighten my wallet which always ends up too heavy without trying.  One way to do that is clean out any un-used plastic – i.e. credit cards.  But should I just store the cards in a safe place at home?  Or should I cancel them?

There are five areas that play into your credit score.  According to www.myfico.com, 35% of your score is based on your payment history, 30% on amounts owed, 15% on length of credit history, 10% on amount of new credit, and 10% on types of credit used.

So a couple of easy hints to derive very quickly is do not open a lot of new credit rapidly.  This shows that you have a potential or are thinking about increasing your debt.  And also, do not close a lot of cards rapidly as this decreases your available credit.

You might be asking why do they care about that?  Wouldn’t I be a lower risk if I could take out less debt?  Let’s look at that formula.  30% of your credit score is based on how much you owe.  So let’s say that you have $15,000 in available credit, but you only owe $5,000 in balances currently.  You have maintained that and gradually dropped it over the last year.  So you owe about 33% of your available credit.  You are in the average American spot.  Now, let’s say you close a couple of cards brining your available credit down to $10,000.  You know owe 50% of your available credit and just upped your risk in the credit card holder’s eyes.  The lenders sum this principle up with the words “proportion of credit lines used”.  This principle is why I recommend a balanced approach to closing cards.

A balanced approach to closing cards is where you work on reducing your debt and amount of cards you carry.  So using our above example, let’s say this year I reduce my balance from $5,000 in credit card debt to $3,000 in credit card debt.  I can then bring my available credit down to $9,000 and keep the same debt to available credit ratio that I had of 33%.  I would also take about 6 months to close the cards spreading it over some time so that I’m not making rapid changes in my credit life.  Rapid changes often equals a red flag.

In summary to the question we began with of “Will Cancelling Your Credit Card Hurt Your Credit Score?”  The answer is “it depends on how you do it.”  You can damage your credit score by closing many cards rapidly; however, there is a balanced approach to closing cards with minimal effect to your and decreasing the weight of plastic in your wallet.