You've probably heard many people say closing a credit card will hurt your credit score. This is partially true because, if it isn't done properly, it can potentially lower your available credit and affect the average age of your credit history.

Available Credit (credit limit - amount owed) is used to determine utilization percentage. To calculate your utilization, divide your outstanding balance (amount owed) by the total credit limit. The ideal utilization is less than 30%.

Average Age of your credit history is self explanatory. The longer the better, but each new account you open lowers the average age of your total credit history.

Combined, these criterion make up 45% of your total credit score or 30% and 15% respectively. Therefore, the slightest change to either could negatively impact your credit score, which is why many people say DON'T CLOSE THOSE CREDIT CARD ACCOUNTS. However, if you insist on closing an account, here's how to close it with little to no effect on your credit score:

1. Combine Credit Limits - if you have multiple cards with the same creditor, you may be allowed to combine the credit limits. Then close the card with the shortest credit history. As a result, you are maintaining the amount of available credit and protecting the length of your credit history.

For example: I had 2 Citibank cards: 1 Dividend card with an $8k limit and 1 Professional with an $11.9k limit. I wanted to keep my Dividend card for the cash back and virtual number feature, but Citi wouldn't allow me to combine a business card (professional) into a consumer card (dividend), so I had to do it vice versa. This actually worked in my favor because the Professional card was the older of the two. After combining the limits, I closed the Dividend card and now have 1 Citibank Professional MC with a $19.9k limit.

2. Request a Credit Limit Increase - if your account has been in good standing for some time, you may be eligible for a credit limit increase. Many creditors perform monthly reviews of your accounts/credit history anyway, and if everything is kosher, they may automatically increase your credit limit every so often. But you can also request a credit limit increase every 4-6 months...depending on the creditor. Warning: if you go this route, make sure their decision is based on an account review or 'soft' credit inquiry. If you allow them to pull your credit report, your credit score will slightly decrease due to the hard inquiry. I actually prefer requesting an increase because you can ask for more than what may have granted automatically.

For example: I had 2 NFCU cards: 1 Platinum Visa with a $20k limit and 1 nRewards MC with a $2.5k limit. The MC was a toy limit (I call anything below $5k a toy limit because I can't do anything but max it out every month) and it was the newest of the two, so I didn't want it anymore. I asked Navy Fed to combine the limits, as described in strategy #1, but they told me a Visa and MC could not be combined. Ok. Since the limit on the MC was only $2.5k, I asked them to increase the Visa limit by $2.5k via an account review. After verifying my income, the increase was granted. Then I closed the MC and now have 1 NFCU Plat Visa with a $22.5k limit. Again, maintaining the amount of available credit and protecting the length of my credit history.

3. Close Newest Accounts - as a combined strategy with #1 and #2 or stand alone when purging, ONLY close the newest accounts. By doing so, you will protect the length of your credit history and ultimately INCREASE the "average age" of your credit accounts.

For Example: I recently opened a new account with Macy's (store & Visa) to take advantage of the additional 20% off in store plus an extra 15% on the statement. Considering this is one of my favorite stores, it was worth the 'hard' inquiry. Upon receipt of the statement, I paid the balance in full. Since I live so close to the mall, I'm sure I will rinse and repeat whenever I'm enticed by another sale. However, if I decided to trim the herd again, this card would be the first to go. Why? Let's say you have three cards with a 7, 5, and 1 year history - this combination has an average age of 4.3 years. If you close the newest card and keep the 7 & 5 year old card, the 'average age' will increase by 1.7 years from 4.3 to 6.

4. Close Toy Limits - as mentioned in strategy #2, if a credit limit is peanuts compared to my other cards, it's on my radar to dump when I'm purging. The amount of a 'toy limit' is subjective because it varies with your comfort level of owning larger limit cards. For me, I'm insulted if a creditor grants me anything less than $5k. Even less than $10k is borderline. I may keep it for 6 mos-1 year to exploit their incentives. Otherwise, I will request an increase every 6 mos, but if they don't align with my other limits, I'll dump them too. Since the limit is so small, it will have very little impact on my overall utilization.

For Example: If my total available credit was $150k and I carried a balance of $3k, my overall utilization would be 2%. If I closed a $5k toy limit card, my total available credit would decrease to $145k but my utilization would increase to 2.07%. Big deal. Also, if the toy limit card was one of my newer cards, it would have very little impact on the length of my credit history. However, if the toy limit card was an older card, I'd keep it and work on getting the limit increased.

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Now you know I don't share anything unless I've tried it myself, so here are my personal results:

Available Credit: Using the above strategies, I recently trimmed the herd of my CC family. I said goodbye to a Bank of America Plat MC, Citi Dividends MC, and NFCU nRewards MC using a combination of all four. As a result, my total available credit was $168k one year ago, but it's now $181k spread across fewer cards.

Side Note: For those who say too much credit can negatively impact your credit score, I call a BS foul and I'm snatching kool points. I pulled my "real" FICO scores a few days ago and here are the results of EQ 761and EX 731. I couldn't validate my identity with TU due to the new address, so I had to manually request a change in writing.
By the way, if you plan to make any major purchases anytime soon, browse this creditboards thread for the latest 20% off coupon code to check your 'real' FICO scores before testing the waters. It's important to know where you stand when potential lenders are making credit decisions.

Average Age: Depending on which credit report you're viewing, the 'average age' (not the length) of my credit history varied between 7-9 years. This is the only negative factor in my credit history and there's nothing I can do about it but age. Since the changes have not taken effect, I haven't confirmed the true impact to the average age of my credit history. But based on an unofficial spreadsheet I use to track my credit limits, history, and balances (email me if you want a sample), it increased by 8 months.

Disclaimer: These strategies are not scientific. They are a result of MY personal experiences, as well as information gathered by other people who actively manipulate and monitor their credit scores. The FICO formula is proprietary data and no one but Fair Isaac and Company can tell you exactly what, why, or how something affects your scores when you manipulate the data in your credit reports. Any minor changes can place you in a completely different pool of consumers whom you are judged against using statistical measures. So as always, your mileage may vary.

Peace & Blessings
Kristine L. Robinson
Personal Mortgage Broker , Financial and Credit Analyst.
612.269.9985--mobile
"Adversity does not build character.....it REVEALS it!"

TO SUM IT UP:
Closing CC's is a personal decision. If you have a balance, and you cancel your paid off cards, your score will go down because your credit utilization will increase.

$2k of $20k in limits = 10% utilization

Or

$2k of $10k in limits = 20% utilization - therefore a bigger credit risk.

Before closing out your cards, I would also ask if you have purchased a home yet? Most people need good credit in order to purchase a home and have a mortgage. Do you have sufficient emergency reserves? Or, do you have a Home Equity Line of Credit available?

If you've already got your credit needs taken care of, and you don't need any more credit AND you're happy with the credit cards you have, then cancel the ones you don't want anymore. You've graduated from credit-based finances to ----based managing cash flow finances! (A much better position to be in financially.)

You've got nothing to lose (except the money they would've taken from you if you used them).

Most experts say there's no single magic number. Rather, the question can be answered by scrutinizing how much you spend and how much you can pay off. But there is an upper limit: Credit agencies warn that the more cards you have, the bigger risk you carry for racking up debt and damaging your credit.

If you have a credit card, you have a credit history. So, the first thing you should do is obtain a copy of your credit report, review it for inaccuracies, correct any problems and then slowly close unused accounts -- trying to close one per month.

Not having a lot of credit cards decreases your worry of late fees. It is easier to remember your payment dates. "Someone with 15 or more cards probably has a difficult time remembering when all of them are due," says Rhode.

Having more credit and more credit cards does not necessarily make a good rating. The key factors are job stability, paying as agreed and paying on time. Keeping up with payments will build a better credit rating than opening numerous credit-card accounts.

Be aware of the terms on your credit card, because those terms dictate your agreement with the creditor. You need to ask about the interest rate and what penalties are attached to the card.

Also, don't close your oldest accounts if you find a better card. "If you close a card you opened in college 10 years ago because you found a better card, creditors will penalize you, because they are looking for a lengthy and successful credit history," says Joyce Murray of Money Management Internal.

According to Experian, one of the three major credit reporting agencies, there's no right number of credit cards for everyone. It depends on how much you spend and how much you can pay off. However, what you can afford at present may change now that most credit cards are increasing their minimum payments.

Just remember that the street of credit fairness runs only one way, and it's in the favor of the creditors. Credit card companies can change interest rates at any time. The most important thing to remember is that you are responsible to keep up with your bills and stay on top of your credit.

Hope this helps!
Peace and Blessings
Kristine L. Robinson
Personal Mortgage Broker , Financial and Credit Analyst.
612.269.9985--mobile
"Adversity does not build character.....it REVEALS it!"

That is really helpful to know. There are so many financial decisions we make everyday without thinking about it.

I really wish I'd opened a credit card that offered points for my spending toward travel, etc. There seem to be plenty of cards out there that have that without an annual fee now. Instead, I have an alumni card from my college, so any savings go back to my alma mater...I should have been more selfish and logged some travel dollars.

The only time it affects it is once you start sharing accounts and cards with each other, but saving is always good and don't go crazy with the credit cards my friend used to spend everything and charge it till he had to consolidate and find a company offering no fee balance transfers to help him out of debt.