Canceling a credit card can hurt your financial reputation

Your gut instinct might lead you to believe that canceling a credit card is a good thing. After all, isn’t this an instance when less is best?

If you thought this was the case, you’re not alone. A new survey from Bankrate.com found 129 million Americans didn’t know that canceling a credit card can have negative consequences.

Here’s how getting rid of your card can backfire.

Understand the downside

Canceling a credit card can affect your credit utilization ratio and credit score.

“By closing a line of credit, you reduce your available credit, which results in a higher utilization ratio," says Jared Weitz, CEO and founder of United Capital Source in Great Neck. "Ideally, you want to have a utilization ratio below 30 percent. For future credit and loan requests, you want to have as strong … a utilization ratio as possible.

"If you have high balances on other credit cards or loans, closing a credit card will impact your credit score and should be avoided,” Weitz added.

Age matters

Credit age contributes to your score and accounts for about 127 points. “If an older card in good standing is closed, it negatively affects the overall credit age on your report," says Nathalie Noisette, founder of Credit Conversion, a provider of educational information on credit in Avon, Massachusetts. "Credit bureaus favor accounts seven years and older.”

What if your card has onerous fees?

If you cancel it, says Joshua Zimmelman, president of Westwood Tax & Consulting in Rockville Centre, “ask your issuers to increase your credit limits on other cards, so you keep your credit limit close" to the same level, and "to lessen the impact on your credit score.”