Canceling a card does not help your credit score

Is your credit score, that three-digit number that purports to measure the health of your credit history, not as high as you'd like it to be? If your credit-card spending is out of control, you may be tempted to cancel some of your cards so that you can elevate your score. But simply cutting up the card the old-fashioned way, rather than canceling it, may be the better way to go.

According to Bankrate.com, canceling your credit card probably won't help your credit score. In fact, it could really hurt it. Here's why:

If you cancel a card, your "credit-utilization ratio" is altered. Say you have five open credit-card accounts that add up to a total available credit line of $50,000. Your total outstanding balance on all five cards combined is $10,000. Thus, your credit-utilization ratio is 20%. But if you cancel two of those cards, bringing your total available credit line down to $25,000, the ratio jumps up to 40%. And that can make your credit score go down.

Bankrate.com also warns against canceling an old card. You build up a payment history on old cards, so if you cancel one you've had for a while, you're only trimming the length of your credit history. This can be especially damaging if the old card was one on which you made regular payments.

The best bet, of course, is to simply pay off your cards. Unless you're paying fees to keep an account open, it's good enough to pay down the balance -- and cut that card up.

By Marshall Loeb, MarketWatch