Should I pay my credit card balances and leave them open or close my accounts?

Question

I have three credit cards (only about $1,500 total) and I am paying them off when I get my income tax returns. Is it better for my credit to keep the accounts open with a zero balance or to close the accounts? I plan on applying for one visa or amex (the ones ai have are crappy Capital One and 2 store cards) I am afraid that keeping the accounts open will show a potential of getting into debt. I am also looking to buy a house this year so that is the main concearn.

Answer 1

It may seem like it would be better to close those accounts, but it's better to keep them open. This is from the 8/05 issue of Consumer Reports:

4. Think twice before canceling cards. The more companies you owe money to, the worse it looks for you. But if you close accounts to boost your score, you’ll end up making things worse. That’s because you gain points if you’re tapping only a small percentage of the total credit available on all your credit cards. Eliminating accounts can reduce that ratio. Also, if you bail out of older credit cards, you will reduce the average account age, which makes up a good portion of your credit score.

Here is a pamphlet that might be useful in understanding how credit works:

http://www.myfico.com/Downloads/Files/myFICO_CFA%20pamphlet.pdf

Thirty percent of your score is based on what you owe and the percentage of your credit that you're tapping into. Another fifteen percent is based on how old your accounts are. Pay those cards off, cut the cards up, but keep those accounts open.

Answer 2

Close the department stores but keep the Capital One open. A large part of your score is based on how long you have been in the credit bureau, 15% to be exact. And how you have paid your accounts, another 35%.

If you do charge anything on your Cap-1 card just pay it off when you get the bill. Thus avoiding any interest.

Answer 3

The longer you have credit accounts open, the better. If you open and close accounts frequently, that actually looks worse on a credit report as opposed to owning cards w/no activity. I would leave the capital one open (just cut the card and maintain zero balance) and if you are really that tempted, just close the store cards.

Answer 4

Well, the advice so far is sound. However, you are not going to like what I have to say. When ever you mess with your credit the score fluctuates. Whether you pay off cards, check your credit score of buy a house or car, you score will dip. Any major activity in you credit record with cause your score to dip, thus making any interests rates you might get rise. So, if you are looking to buy a house any activity, good or bad, will have an impact.

Answer 5

I'd close any accounts you are not actively using. It hurts your score to have a bunch of accounts that are never used. Also, the more credit inquirys you have to your name hurts also.

I have 1 card I use everyday, 1 for emergencies which I never use, and 1 store card which I use maybe twice a year. I got a house and a car just fine.

Answer 6

Here's what you do: find whichever card has the lowest interest rate and dump the other two cards' debt onto it. Close the other two and start paying it off as much as possible. If you're trying to save up for a house, you need the least amount of debt and interest accumulated, and it will help with your credit rating.

Answer 7

Pay them off and leave them open, even if they're crappy. Reason being that it actually hurts your credit when you close accounts, it reduces the number of trade lines (open accounts). Remember this, you want to have as much credit history as possible, especially if you've been paying on time. Closing the accounts would reduce that.

Answer 8

I'd close the department stores. Their interest rates are too high anyway. It's good to keep one or two cards open, have a low balance or pay off completely every month. How else are you going to maintain credit if you don't have credit?

Answer 9

I would pay off all of your credit cards, cancel the store cards, and shop around for a lower interest bank card. If you have too many credit cards in your name it may be difficult for you to secure a loan. The bank may feel that you have too much available credit.

Answer 10

close the two store accounts and keep the capital one card open until you receive your new visa. once you get your new visa close the capital one card and keep the visa open. this will help your credit score and eventually help with a future mortgage interest rate. good luck.