I found out years ago that cancelling a credit card after paying it off negatively hurts your credit. Doesn't make sense to me, but there ya go. So just don't use the cards if you can help it, but keep the accounts open or you'll be penalized.

Yes, if the financial institution closes out your cards for non usage on their own, thats a different story. I had a card that got closed out and now the company is always sending me promotions to open up a new card because they want my business. The reason you probably got hurt is the fact that the card that you closed was most likely a card that you had for years. The credit bureaus have a formula that is unrealistic. Someone might have excellent credit for 10 years or so and that is not good enough. If you ever look at the factors for credit scores, one of them is based on how long you have had credit.