Why does closing a credit card hurt your credit rating?

A Visa card I've held for years and paid faithfully recently sent out letters to state they are increasing their interest rates 6%. This is an incredible jump, so I called to try and negotiate. I was told I could either accept the rate or not charge anything else on it and pay it off at the current rate, and I chose the later. Once it is paid off, the card will close. I've read that my credit rating will suffer. Can anyone explain why, or give me an option to hurting my credit rating that doesn't include me capitulating to a terrible interest rate.

Public Comments

1. Yes because it completely gets rid of any credit HISTORY you had with that company. Make sure you see that I wrote HISTORy, becuase that is a major factor in your credit score.
2. What can happen is that your total available credit will decrease as a result of closing the card out...which may increase your utilization rate. Higher utilization rates can cause your credit score to drop.
3. Yes, it's just about the history/length of your credit score(aka the "I love debt score"). Before you do ANYTHING, listen to this man for free, on the radio or online. This is like getting financial wisdom from Bill Gates, except this guy has a radio show. He had a call this week identical to yours. Half way down click "Listen to Dave". JUST listen. http://www.daveramsey.com/tdrs/index.cfm/2007/9/17/Getting-rich I will say that just this single audio clip CHANGED MY LIFE when I heard it.
4. well the reasoning is you have the charging power but are not spending it....like you get a better credit rating if you keep your charge cards below 50%
5. By closing your credit card account, you are literally telling the creditors I'm not responsible enough to have this card so i don't want it. So, just hold on to it and use it sparingly. To improve your score, always pay on time and whenever you pay off your balance your score will go up.
6. What they refer to when they say it could affect your rating is this. Let's say you have a credit card with $5000 credit it on it. You owe nothing on it lets say. You then close it out and get rid of the card completely. Well that just dinged your credit report as if you lost $5000 in credit. So thats not good for your report. However lets say you got a card with $1000 credit on it but every year they charge you $50 for a renewal fee. In that instance I would say get rid of that card and just get another without a fee. So if you close out a card with a little credit it on it ..this matters not much. Its when you close out cards with high amounts of credit that really matter. Also paying off cards is really good for your credit score.
7. There are several reasons closing a card can hurt your score. There are many articles online to explain this. I am posting a link for you.
8. Closing the card hurts your credit for two reasons -- First, it will lessen your credit history. Having a good history on a card for a long time helps your score tremendously. If you have other cards that have been opened and in good standing of for a long time, then closing this card won't hurt too much. Second, it increases your credit utilization. Credit bureaus use the amount of credit available versus the amount used to calculate your score. If you close the card, you have less credit available, thereby increasing your credit utilization -- which makes you look like more of a risk.