This is a guest post from Sarah Scrafford.

Do you have more credit cards than fingers on your hands? Are you finding it difficult to juggle around balances and payments? Thinking of cancelling a few of those pieces of plastic? Stop, and think again - cancelling a credit card can have an adverse impact on your credit scores. Ironic, isn’t it? Just when you want to set your financial aspects in order and watch your spending habits, something as positive as cancelling a credit card seems to have a negative effect on your credit score!

But there’s more than meets the eye to the relationship between a cancelled card and your credit score. Besides other factors, your credit score is calculated by taking the ratio between your outstanding credit and the total credit that’s available to you, which means that lower numbers are better credit scores. When you cancel a card, you also bring down the total credit that’s available to you, which is why your credit score goes up and your credit rating down. But the reverse is also true – the lower your outstanding balance is, the higher your chances are of a better credit score.

If you know how, you can have your cake and eat it too – cancel your cards and not affect your credit score too much. The trick lies in picking and choosing which cards you cancel and how well you manage your finances after the cancellation:

• Hold on to the cards you’ve had for a longer time and cancel the newer ones.
• Cancel cards that have the highest interest rates.
• After you cancel a card, make all your payments in time and avoid maxing out any of your remaining cards. This will, in time, get your credit score back to normal.
• Do not cancel cards that have balances that need to be paid.
• If possible, cancel cards only when all your balances are nil.

Sarah Scrafford is an industry critic, as well as a regular contributor on the subject of credit cards. She invites your questions, comments and freelancing job inquiries at her email address: sarah.scrafford25@gmail.com.