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Q&A: Should I Close Accounts that Have Been Paid?


Dear Rachel,

I recently paid off a few of my credit cards. Should I close the accounts so I will not be temped to use them?
Someone told me that could affect my credit score.

Thank You - Matthew


Dear Matthew,

A large percentage of your credit score is determined by how much of your available credit you are using.

If you have 6 credit cards.. each with a $5000 credit limit.. you have a total of $30,000 available credit.

If three of these cards are paid off with a zero balance.. and the remaining three cards have a total combined balance of $10,000 on the three cards.. then you are using 33% of your available credit.

However, if you were to close two of the paid off credit cards.. your available credit drops to only $20,000.

With the balance of $10,000 on three of your cards.. you are now using 50% of your available credit. This is considered to be a high debt to available credit ratio and will cause a drop in your credit score.

It is much wiser to leave the credit card accounts open. If you are afraid you will be temped to use them.. don't carry them with you. Simply put the cards in an envelope and keep them locked up at home in a filing cabinet.

Another reason to keep these credit card accounts open is that you will likely receive a balance transfer offer from one or both of the issuers now that your balances have been paid off.

Transferring the balances from other higher interest cards can save you hundreds of dollars in credit card interest.

Be advised, however, that some issuers will cancel credit cards which have a zero balance and have been inactive for an extended period of time.

Take the cards out of the filing cabinet at least once every 6 months and charge something on them just to keep the accounts active. It doesn't have to be a large purchase.. any purchase is fine, just to show account activity.

 
Ask Rachel

Article Courtesy of: CreditCardApprovalCenter.com


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