Consumer Reports: Put down the scissors, step away from the credit card

Cutting up a credit card can be liberating, especially if you've spent years diligently paying off the debt. But Consumer Reports says keeping old credit cards could come in handy when applying for a mortgage or other loan.

"One of the things that bankers look for is your credit utilization ratio," Consumer Reports Money Editor Nikhil Hutheesing said.

That ratio is the balance you owe on your credit cards compared with the amount you can actually borrow, so if you cancel an account, you lose its available credit.

"Your utilization ratio goes up, and you're not as attractive a candidate," Hutheesing said.

Lenders like the ratio to be less than 30 percent.

You also should keep a credit card if it's the only one you have because lenders like to see that you have various types of credit, such as an installment loan, a credit card and a store card, Hutheesing said.

"If you cancel the one credit card that you have, that's going to reduce your mix, and it's not going to look as good," he said.

A longer credit history helps boost your credit score, so if you really want to close one of several cards you carry, ax the one you got most recently.

If you plan to apply for any kind of loan, canceling a credit card will affect your credit score for about six months.

Consumer Reports says the only time you should consider closing a card you don't use is if there's an annual fee. As long as there's no fee, there's no harm in keeping those accounts open, Hutheesing said.

"Your best bet with a credit card is to stick it in your dresser drawer and just put it away if you're not going to use it," he said.