How does closing a credit card impact my scores?

John – I want to close an old credit card but I’ve heard it will lower my FICO scores. Why?

Answer – When you close a credit card, assuming the balance is $0, that card will no longer count in the calculation of your revolving utilization percentage, which is an important component of your FICO scores. Add up all of your credit card limits and balances. Divide the total balance figure by the total limit figure. That’s your utilization percentage. Now, pretend you’ve just closed an account. Back out that lost credit limit and recalculate. It’s almost a guarantee that your utilization percentage just went up. And, it’s possible your scores went down as a result.