Money Fix: Closing a credit card can affect FICO score

An office manager in Ronkonkoma who pays his credit card bills in full each month writes to ask, "If you cancel credit cards that you seldom use, is there any ramification to your credit score?"

This is a particularly good question, with some card issuers looking to charge inactivity fees as well as annual fees.

If you always pay your bills on time, consistently keep balances low and open a new account only when necessary, don't worry too much about closing one account, says Craig Watts, public affairs director for Fair Isaac Corp., developer of the FICO score.

Still, some things to know:

Credit use ratio: The credit score algorithm likes to see a low ratio of the total amount of credit used relative to the total amount you still have available.

If you pay off those cards you do use in full each month, you may think your ratio is zero, but that's not the case, says Watts.

Whatever you owed on your last bill or bills will likely be reflected on your credit reports, which are used to calculate your score.

Decrease limit: Closing a card reduces the total amount you still can borrow. If by doing that your credit-use ratio jumps by just 5 percent to 10 percent, not to worry, he says. That's not the case if the jump is more in the 40 percent to 60 percent range.

Increase limit: If you do foresee a big jump and are a stellar customer, you can look to bring your amount available to borrow back up by asking your other card issuers to increase your credit limits. What's not a good idea, says Watts, is to open another credit card. The algorithm will penalize you.