How many credit cards do you have? Too many? Are you planning to apply for a credit card, and wonder which of your old cards you should cancel? Its always tempting to think that you have too many credit cards. Common sense dictates that it is best to consolidate your credit card balances onto one card. But cancelling your old credit cards can be costly to your credit rating.

There are two reasons for this:

1) Cancelling old credit cards will cause their credit history to be dropped from your credit report after 10 years. Since credit scoring is determined in part by the length of your credit history, this will cause your score to be lowered. Note that it is a common fallacy in credit card articles to say that by cancelling a credit card, your credit score will immediately be reduced. It may be lowered by a few points, but the real concern should be for your long-term credit history.

The best policy is to keep your credit cards and thereby retain your credit history. Having too many cards will only affect your score marginally. But if you feel that you have too many credit cards and would like to cancel some of them, then it is better to cancel some of the more recent credit cards, so that you can retain your credit history on your older credit cards.

Also, if you have an older credit card that you are no longer using, go ahead and use it occasionally, once every few months, so that your bank does not cancel the card from lack of use. This will retain the card in your credit history.

2) Keep your overall balances low. Your credit card balances should not exceed 20 - 30% of your total available credit among all your cards.

This amount is easy to determine. Total up all of your balances, then divide by your total available credit. Multiply this figure by 100. This number is the percentage of total available credit that you are using. If this number exceeds 30%, then creditors are concerned that you are carrying too large of a debt load. This in turn will lower your credit score. The higher the percentage of your available credit that you are using, the greater the credit risk you are considered to be.

As a final thought on this subject, the average American family has $10,000 in credit card debt. If you have high credit card balances, and in particular, if your debt ratio is greater than 30% of your available credit, then you need to reduce this percentage in order to raise your credit score.

You worked hard to gain a good credit score. Avoiding these common mistakes will help preserve it.

Author: Glenn Bemis

www.NativeStar.org - The Ultimate Credit Card Guide