Credit utilization makes up about 30% of your credit score and yet most Americans don’t understand what credit utilization is. It is basically simple and is generally expressed as a percentage. The higher your credit utilization percentage the lower your credit scores.

Each item that is on your credit report has a figure assigned to what credit is available to you. This might be the beginning loan balance or your credit limit on a credit card. If you have a mortgage and the mortgage was for $100000 then your credit available was $100000.

Now if you have paid on that mortgage and now only owe $50000 this is considered your Credit Debt. So if you had a mortgage for $100000 and still owe $50000 to the bank, your credit utilization is figured as follows:

Credit Available = $100000, Credit Debt = $50000, Credit utilization is 50%.

Keeping your credit utilization close to 30% is best and what most lenders are looking for. But if you have a mortgage and/or an automobile loan it might cause your utilization to be much higher. Remember, keeping your utilization down will help your credit score.

Most lenders want to make sure that your revolving, or non-secured credit is kept at or below 30%. This means that if have credit card debt, keeping it below 30% will be best and make lenders much more comfortable when looking at providing you with credit.

Mortgage lenders that see you keeping your utilization down are more likely to provide you with a loan because they feel that you are managing your credit properly. Having a high credit utilization also means that you could be more likely to have a problem than one that has a lower credit utilization percentage.

Take the time to review your credit report. Pencil out what your credit utilization is and then look to see what you can do to reduce that number. The lower the number the better your credit score. Having a large amount of available credit is better then using it.

Many consumers think that having a credit card that is delinquent may need to be closed. Just because you owe money to the credit card company, closing the card will never help you with the delinquency. You will still owe the credit card company money and now will not be able to get any benefit from it. Generally, closing a credit card account will hurt your credit more than it will ever help it.

But here are 5 credit cards that you should NEVER close.

1. A Card that still has a balance on the card. If you close a card that has a balance due on it, the total available credit will get reduced to $0. Now the card will appear that you have maxed out the credit card. Maxed out credit cards hurt your credit score. Balances should be no more than 30% of your Credit Limit.

2. Credit cards with available credit. By closing out a credit card that has some credit available you will decrease your total available credit and raise the amount of credit you are using. This percentage will also hurt your credit score. Showing that you have $1000 in available credit and using $900 is better than showing you have $900 in available credit and your using $900 in credit.

3. Your only credit card should never be closed. Part of your credit score is what type of credit you have, so if you close your only credit card, this will hurt your credit score since you don’t have a revolving or non-secured credit card. Additionally, you might find it more difficult in obtaining a credit card since a new lender might think that you don’t have any experience in credit cards.

4. Your oldest Credit Card account should never get closed. The credit bureaus use length of history as part of your credit score. The older the account the better for your credit score. Lenders will review your length of history to see if you are a good risk. An older credit history will have a perceived better risk then a newer credit account.

5. The credit card with the best terms for you should not get closed. You don’t want to close a credit card that is not charging you any annual fees or has a lower interest rate and may have other benefits such as “Airline” miles. Any card that gives you some value for your dollar should be kept over cards that don’t have any value.

Some creditors may advise you to close credit accounts to protect yourself from fraud or identity theft, but you really want to review the cards before you choose to close any cards. It is fine to close a credit card account that is fairly new and does not have any balances if you have several other cards.

If you choose to close a credit card account, be sure that you do so in a written letter. Additionally, you should request in writing that you receive a written confirmation that the account was closed (by your request) and was closed in good standing. This will protect you in the future if anything comes back regarding the account and why it was closed. Accounts that are closed by the credit card company will hurt your credit report as some lenders may think that the creditor closed the account due to something that they perceive as negative. This could hurt your credit application.

Many times it is just better to keep those credit accounts open as they will help your credit score in the long run. Just remember to use those older accounts once and a while to keep the history updating.

First of all, you may not want to get rid of any of them. Having a credit card can’t hurt you financially unless you don’t use the card at all and that card charges you an annual fee.

If you want to limit the number of credit cards you have then you should review what cards you have. It depends on what those cards are as to which cards you should keep.

Start sorting your credit cards by putting all the cards that charge you an annual fee. If the card is not charging you an annual fee, then it does not make any sense to get rid of that card unless it falls into one of the other categories. The cards that are charging you an annual fee should be the cards that you continue to review to see if you want to get rid of them.

Look at the interest rate of each card and compare them. If a card has an excellent interest rate and you have done a balance transfer to that card to help with the amount of interest you are paying, then you should keep that card. But if the card is charging you an annual fee and does not have a good interest rate, then you might want to consider that card for the next step.

Now you should have credit cards that have an annual fee and do not have a great interest rate. Next is to review what benefits you might have by using the card, such as benefits (mileage, points, cash back, etc…). If you get a benefit for using a card then it might pay to keep that card. But for the benefits to pay off you will need to use that card. So keep that in mind.

Now the final part of deciding on keeping a credit card should be the amount of time you have had the card. Generally, you have older cards in your possession that you have had for a very long time. These cards might have been some of the first cards that you owned. They charge you an annual fee, have a higher interest rate and may not have any benefits when they are used. But due to the length of time you have had the card, you may want to keep them as they are benefiting your credit score. I have actually seen people who have closed some of their credit card accounts only to find out they have lowered their credit score.

Think long and hard about reducing your credit unless you have a lot of “new” cards that don’t have any benefits to you. These are the accounts that could be removed and benefit you in the long run.