If you are thinking of closing one or more of your credit cards because of annual fees, high interest rates, or because you want to simplify your finances, then you have to go about it in the right way to ensure that you don’t hurt your financial ratings. The factors that you need to consider are the age of your accounts, and how closing an account will affect your credit utilization ratio.

You should never close your oldest card, even if you no longer use it, because the age of your  history counts for 15% of your overall credit score. Whilst it is true that closing an account will not remove it from your financial report for another 7-10 years, it will remove it eventually. If your old card accounts are just sitting around harmlessly, leave them be.

If there are pesky annual fees that you want to avoid, first try to negotiate with your bank or your  card provider to have them removed. If this does not work, and you are set on closing the account, at least ensure that you have cleared all balances beforehand.

If you feel that you have too many cards and want to simplify your financial situation, close one of your newer accounts, preferably one with a less stellar history. Also, do not close too many accounts within a short space of time. If you are seriously trying to streamline your finance, you may have a fair few credit cards that you want to close. Close one every six months or even every year, rather than closing them all at the same time.

Never close an account with an outstanding balance as this will damage your credit score. Make absolutely sure that you pay off all remaining balances before you close an account and then double check with your bank or your card company that the balance has definitely been cleared. This is because sometimes you may have neglected to take interest into consideration when you pay your balance, and the interest remains on your account. This will appear on your credit report as an outstanding balance.

Another problem is that interest may still accumulate while your account is in the process of closing. Call the customer support line to ensure that interest has not accumulated during this closing period and that the account has definitely closed.

Never cancel a credit card over the internet; it is much better to do it over the phone, by mail, or within your bank. Be sure to specify that the account is being closed at the cardholders request and ensure that it appears this way on your credit report. Your financial score can be seriously damaged if it looks like your account was closed by your creditor as it implies that you misused the account.

If you only have one credit card, do no close it. This is because 10% of a credit score is influenced by your variety of credit; having a loan, car insurance, or a mortgage is one thing, but having a card with good credit history shows that you are reliable, responsible, and experienced in your own financial management.

What you really need to think about when you decide to close one or more of your credit card accounts is how it will affect your credit utilization ratio. This involves working out your total outstanding balances against your total available lending (which is calculated by adding together all of your credit limits).

By closing an account you are reducing your total available credit, which can make any outstanding debt look more problematic than it was before. For example, if you have two accounts each with a $5,000 credit limit, and you have a $1,500 balance on one and $0 on the other, closing the second account will raise a credit card utilization figure from 15% to 30% (because your balance is now calculated as a percentage of a smaller amount of available credit).

The bottom line is that if you have multiple liines of credit, it is OK to close newer accounts that do not have any outstanding balances, or any account that has unreasonable interest rates or annual fees. Be aware of how your credit utilization percentage will be affected by closing any of your accounts; if you have no debt or only a small amount of debt, it probably will not be a big deal to close one of your accounts (thereby reducing your available total credit limit). But if you have a large outstanding balance, pay it off or reduce as much as you can it before you close any of your accounts.