Peer review: Credit-card switch: Go along, or cancel?

Q A major retailer stopped using its own credit card. I have received as a replacement a Citi MasterCard with a much higher credit limit. I have the option to cancel or accept this card. Will canceling this card have any effect on my credit score? I already have two cards, a Visa and a Discover, and would prefer not to do business with Citibank.

HOPE

A Canceling a credit card can hurt your credit score in a couple of ways. First, 30 percent of your credit score is attributed to the amount owed compared with the amount of outstanding credit. Therefore, you're better off from a credit standpoint if you owe $2,000 with a $20,000 limit as opposed to $2,000 on a $5,000 limit. Canceling a credit card will reduce your outstanding credit limit and if the outstanding balance does not also decrease, your credit score can be negatively affected.

An additional 15 percent of your credit score is attributed to the length of your credit history. Maintaining a line of credit for 10 years is better than a credit line that has only been open for a year. Your new Citibank card may be considered the same credit line as the old store card. If this is the case, you might want to keep the Citibank card, depending on how long you've had the old card and your overall credit history.

If the accumulated balance on your current credit cards is greater than 50 percent of the overall limit and you plan to acquire new debt (home, auto, etc.) in the near future, it might make sense to keep the Citibank card. It doesn't make sense to take steps that could temporarily lower your credit score at a time when lenders may be trying to determine your creditworthiness. On the other hand, if you have a relatively small balance on your current cards, have no immediate intention of acquiring new debt and have an established credit history, it probably makes sense to go ahead and cancel the card.

BRANDON JONES, CFP