• Bob Brooks

Credit Tip - Don't Close Old Credit Cards

You know the feeling. You despise your debt. You work and work to pay it off. You finally pay it off and you want to erase that debt from your memory by closing the card and saying good riddance! Is your rush to erase the past a good move? Emotionally...yes, maybe so. However, as far as your credit score goes it is not a good idea. You always want to leave your credit cards open and here is why:

Part of your credit score is based on the credit utilization ratio. This ratio looks at how much available credit you have been given and how much of that credit you are using. For example if you have $10,000 of available credit lines and you are using $3000 of that credit line your credit utilization ratio is 30%. The 30% ratio is where you want to stay under. Lets say you close a credit card that has a 5000 credit card limit and your total credit limit goes from $10,000 to $5000. With $3000 worth of debit, your credit utilization ratio climbs from 30% to 60% - YIKES!  

How much does that effect your credit? It depends on your history and what is on your credit reports. For some the effect will be very negative and for others the effect will be minor. The bottom line is that it does negatively effect your credit score in some way so keep it open.

If you are keeping a credit card open that you are not using, be sure to go online and turn the alerts on. You want to be alerted by text or by email if you have a balance. That will tell you if there is some type of fraudulent activity occurring you need to be aware of. It is good stewardship to go online or check your bill once a month and make sure everything is as it should be!