What 'dings' your score is the reduction of available credit. If you lower your limit or cancel the card, you have less available credit, so your debt to credit ratio goes up, giving you a lower score.
One problem that can occur is that if you apply for a mortgage or some other large loan, you can be declined because of your available credit being too high.
I thought the same thing as red.
"Available credit" is the same thing as a loan. The banks assume that the higher your credit card limit, the bigger the risk you are for paying back a bank loan or mortgage, since you could potentially use up your entire $57000 credit card limit in 1 minute. In other words, you could potentially go from being completely CC debt free, to completely max'ed out in an instant. When your credit rating is being considered, either a huge limit on a single credit card, or a large number of credit cards with smaller limits, actually hurts your credit rating.
Cancelling some credit cards, or lowering your limit should actually improve your credit, since you have less potential to accumulate debt through your CCs, which decreases risk for the bank.
Of course, a history of paying back your loans and credit card debt is also factored into it.
Funny though, I didn't know that asking for an available credit reduction could negatively impact your credit score. We recently did that on 3 cards and our credit rating went up. So I'm confused about who told you that reducing credit card available credit would hurt your score.
Yes, I'd like to know too, please.
I'm not an expert, so if I can learn something, then great.
