Potential Hazards of Cancelling Credit Cards
Despite the financial hazards associated with the use of credit cards, they do serve a purpose if they
are used sparingly and paid off each month on time and without leaving any balance left over. Their
benefit is that they can keep an individual’s debt to overall available credit ratio quite low.
When a person takes out a credit card, he or she is extended a line of credit. The bank or issuer of
the card will assign a line of credit to the card that the cardholder is expected not to exceed. After
timely bill payments or a dramatic increase in a party’s credit rating or score, the bank may increase
the total amount of available credit that a person has. When one adds up the available credit amounts
from each card, that figure is the total credit available to a person.
The debt is the amount of money left in debt or on credit cards at the end of each month or a six month
period. This is compared to the overall credit available. If the ratio is low, or the percentage of
the total credit allowed is low, a person is likely to have a higher credit score.
If a credit card is cancelled, however, a person’s credit score may decrease, particularly if the card
that is cancelled has a high credit limit on it. So if a person has $2,000 on a total credit limit of
$20,000, he or she is only using 10% of the available credit which is good. However, if one card with
a large credit line is cancelled, the percentage of credit available is significantly higher.
When the percentage of credit used is high, a person’s credit score or rating is likely to go down.
Contact an Austin Bankruptcy Attorney
If you find yourself in a dire financial situation, contact the Austin bankruptcy attorneys
of Slater, Kennon, & Jameson, LLP at 512-338-1100.