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Home » Resources » Articles And Reports » Did You Know Credit Scores Aren’t That Easy?

Did You Know Credit Scores Aren’t That Easy?

Did you know cancelling your credit card isn’t always the best option for your credit score?

If you pay an annual fee it’s probably better to go ahead and cancel the card. If you don’t, sometimes just cutting up the card is the better option and here’s why:

One of many equations which determine your FICO credit score is what’s called your credit utilization ratio. Simply put, it’s the sum of the balances on all your credit cards divided by the total credit limit on all of those cards.

For example, if you have three credit cards with a $3,000 limit on each that gives you a total credit limit of $9,000. Assuming one card has a balance of $1,000, another a balance of $2,000, and the third has no balance, you have a total of $3,000 in balances. Combining those numbers and plugging in the formula, that puts your credit utilization ratio at 33%. There is no ideal number to aim for with your credit utilization score, but it’s safe to aim for 30% or lower. If you had cancelled the third card that has no balance, that would drop your credit limit to $6,000 and upped your credit utilization rate to a huge 50%!

So remember, cancelling your credit card, even if it’s not being used, may not be the best option for your credit score.

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