Aussies 'should think before cancelling credit cards'

Aussie credit card holders have been urged to think carefully before cancelling a card.

Money AU advises borrowers that cancelling a card - whether it is because people wish to carry out a balance transfer, take advantage of a new product or otherwise - "is not so simple as picking up a pair of scissors and cutting it up".

Indeed, it points out that such a move could in fact damage a person's credit score, especially if the account has been held for a long period of time.

However, those determined to close an account without damaging their financial file were urged to first of all ensure that they have zero balances on all their active cards

This is because credit agencies are increasingly analysing consumers' balance-to-limit ratio - the actual amount of credit being used compared to the total credit available to the borrower - with those having a low balance-to-limit ratio more likely to represent a good credit risk.

Meanwhile, Lisa Montgomery, head of consumer advocacy for Resi Home Loans, recently told the Sydney Morning Herald that any black mark on a credit report - such as a missed credit card repayment - could damage Aussies' ability to successfully apply for a home loan.