Q&A: Lower credit limit, lower credit score?

Q: I used to have a Citibank Visa with a $20,000 credit limit and a Visa from my bank with a $20,000 limit. I canceled the Citibank card and lowered the limit on the other card to $10,000. Will this affect my credit score?

A: It depends. Thirty percent of your FICO credit score is based on amounts owed, and that part of your score includes your credit-utilization rate, which is the amount charged on all your cards as a percentage of your total credit-card limits. So if you have only one card with a $10,000 limit and you’ve got a $2,000 balance, your credit-utilization rate would be 20 percent. With an $8,000 balance, your rate jumps to 80 percent. Credit issuers generally like to see a credit-utilization rate of 30 or 35 percent, or less.

"If a credit report shows no outstanding balances, then the credit utilization is zero," says Craig Watts, a spokesman for Fair Isaac, creator of the FICO score. "In this situation, closing one account and lowering the limit on the other probably had no effect at all."

If you had a balance on the remaining card, your score would have been affected by your actions. But Watts says your score would recover in a few months.

There are other factors that can affect your credit score. Consumer Reports Money Adviser offers more recommendations on how to stay on top of it.