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Should You Cancel Your Credit Card?

Beware: Your credit score could take a hit.

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Is it better for my credit score to cancel a card after paying it off or to keep the account open? --M.J.D., Glouster, Ohio

TAKE OUR QUIZ: Will It Sink Your Credit Score?

Keep the account open. A key factor in your score is your “credit utilization ratio,” which is the amount of your available credit you’ve used (divide your total balances by your credit limits for all open cards). Credit expert Beverly Harzog, author of The Debt Escape Plan, recommends keeping your ratio below 30%. If you’re trying to boost your score more quickly, it’s even better to keep it below 10%, she says.

If you want to close an account with high fees, pay down the balances on the rest of your cards to minimize the impact on your credit utilization ratio.

Closing the account won’t remove it from your credit report. A closed account with no late payment history can remain on your credit report for up to 10 years. An account with negative payment history will remain on your credit report for seven years.

For more information about factors that affect the credit score most lenders use, see the Credit Basics section of MyFico.com. Also see our Credit Reports & Scores special report.

SEE ALSO: 9 Secrets to Better Credit

Got a question? Ask Kim at askkim@kiplinger.com.