Canceled Credit Card - How Will It Affect My Credit Score?

Reader Question: How will it affect your credit score if a bank cancels your card due to lack of use and you have two other cards from the same bank?

It depends on the balances of the other two cards. More specifically, it depends on how much of your total credit limit you are losing ... after the third card is canceled.

The key concept at work here is referred to as credit utilization ratio. This is the percentage of your available credit that you are using. In the chart below, this ratio shows up as the red section (amounts owed). You can see that it's a sizable chunk of the overall FICO scoring model.



So the question is, will your credit utilization ratio be better or worse after the one card is canceled for inactivity? This will likely determine whether your score goes up, down, or stays roughly the same. To answer this question, you need to consider the balances of the three cards.
For example, consider this scenario:

• Limit on card #1 -- $5,000
• Limit on card #2 -- $6,000
• Limit on card #3 -- $4,000

In this scenario, the total available credit limit for all three cards is $15,000. Now let's assume that these cards have the following balances on them:

• Balance #1 -- $4,500
• Balance #2 -- $5,500
• Balance #3 -- $200

When you add it all up, this person is using $10,000 of their $15,000 credit limit (across all three cards). So their utilization ratio is about 68 percent. That's not so good. Now let's say that the bank cancels one of the three cards, for whatever reason. It could have a positive or negative impact on their credit utilization ratio, depending on which card gets canceled.

If card #3 gets canceled, then their available credit limit shrinks to $11,000 (the limit on cards #1 and #2, combined). Now this person is using a much higher percentage of their overall limit ... so their credit utilization ratio goes up ... and their credit score will probably take a hit as a result.

Hopefully that doesn't confuse the heck out of you. But this is how it works, more or less.