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Credit card debt, cancellations can affect credit score

If one number is more important to Florida residents' everyday financial lives than any other, it's probably not their social security number, cell phone number or even their credit card number. No, the number that affects everything from where they can rent an apartment to whether they need debt relief is their credit score.

This three-digit number affects a wide variety of financial options open to people who seek credit or are trying to get out from under high credit card debt. But even wider is the range of influences that make up one's credit score. A full 35 percent of the score is calculated based on a person's payment history. No late payments mean no problem.

Another 30 percent depends on the debt-to-credit ratio, and it's here that canceling cards can lower a credit rating, even if the person is no longer using those cards. For example, a consumer with $2,000 of credit card debt and $2,000 of unused credit would rate better in this category than someone with only $2,000 of multiple debts who canceled the unused cards. Debt consolidation can affect credit scores, too. Also taken into account is how long a person has been using credit, at 15 percent; what kinds of credit are currently held, at 10 percent; and the number of recent credit inquiries, called new credit, for the final 10 percent.

While all of these percentages may seem like an arcane way to decide if someone is credit-worthy, knowing what factors go into a credit score can help Florida residents to better plan their debt strategy. An attorney experienced in debt consolidation and debt relief may be able to help consumers who feel in over their heads in credit card debt.

Source: Fox Business, "How Canceled Cards Impact Credit Scores", Erica Sandberg, July 22, 2013

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