Will canceling your card hurt your credit?

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In today's tight credit market, the last thing you want to do is jeopardize your all important FICO score.

It can determine everything from your mortgage rate to your car insurance. So should you cancel a credit card or pay the higher interest? That's what many people are asking.

Benita and John Malone were suddenly faced with an ultimatum from their credit card company.

Capital One said either pay twice as much interest or give back the card.

"It's going to drastically affect us," said Benita Shaw-Malone.

Russell Bromley received a similar notice from Citibank. If he wanted his card to remain open, his interest rate to 16.99 percent.

"We'd been led to believe n the past you don't want to cancel credit lines because it will negatively impact your credit rating. And under the current economic situation nobody wants to negatively impact their credit rating," said Bromley.

So will a cancelation hurt a credit score?

"That could have a negative effect on your score," said Craig Watts from FICO.

It is a fine line but here's the basics to how it works.

If you have three cards and carry no balance, canceling one card will have little effect. But if you have three cards and two are maxed out, canceling the third will cause your credit score to plummet.

"The system's really asking you how maxed out are you on your credit cards. The more maxed out on your credit cards when they run that ratio, the greater push downward on your credit score," said Rick Harper from Consumer Credit Counseling Service of San Francisco.

So the best case is a lot of available credit, and not much use of it. the worst case is little available credit, maxed out.

Bromley figures his score won't go down, but why chance it?

"We'll probably stay where we are and try and keep an eye on it through credit reports," said Bromley.

Benita and John are in a different situation, but they don't much want to chance it either.

"We only have two credit cards, so that would be major for us," said Shaw-Malone.

It doesn't matter whether you or your bank closes the account, it will have the same effect on your score.

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