What are the disadvantages of cancelling a credit card?
A disadvantage of closing a credit card is that it can impact your credit score if you already have high balances on outstanding credit, such as loans and credit cards. The aim is to only use 25% of the credit available to you. Lenders don’t want to lend to those with a utilisation ratio of 100% - you’ve maxed out all your credit, and they don’t want you to have 0%.
A good credit score can be determined by only using a portion of the credit available to you, also known as the utilisation ratio.
However, this is just a guide and will vary on each lender’s risk appetite. Lenders may extend credit where there is high utilisation, they may do it at a higher interest rate or lower credit limit.