How credit card use impacts your FICO credit score

Your FICO credit score is made up of five factors of varying importance. Here's how your credit card use (or lack thereof) can affect each of the components.

Note that the weighted importance of the categories are averages. For some people - such those who haven't been using credit for long - certain categories may count more heavily.

_Payment History. This accounts for 35 percent of your FICO score. If you have any late payments, the score will take into account how late you were, how much was owed and how many late payments there were. If your overall report is strong, a few late payments shouldn't be a score killer.

_Credit Use. Thirty percent of your score is determined by your credit utilization ratio, which measures your outstanding balance against your available credit. So if you have outstanding debt and cancel a credit card, losing that line of credit will mean you're using up more of your credit - which will raise your credit utilization and thus lower your score.

Experts say it's best to use less than 30 percent of your available credit. Generally speaking, the lower the percentage the better.

_Length of Credit History. This determines 15 percent of your score. So if you're closing credit cards, keep the card you've had the longest.

One alternative to closing your accounts is letting them sit. But you should check on them occasionally to make sure identity thieves aren't using them.

source : http://www.forbes.com