Question : When you pay off a credit card is it better to reduce the credit limit or close the account?
I've heard that once you pay off a credit card you shouldn't close the account to keep a good credit score. I've also heard that even though one pays off his credit card reducing the credit limit is also not a good option for keeping a great credit rating. What is the best way to handle this situation if you don't really want the card around to prevent you from running the balance up, but also don't want to hurt your credit rating. Is there any way to find out what exactly affects one's credit score? Examples: Let's just say a website or book states something like filing for bankruptcy subtracts XXXX amount of points from your credit rating. Defaulting on credit card payments for XXX amount of months subtracts XXX amount of points from your credit rating. Paying off federal student loans adds or subtracts XXXX amount of points from your credit rating. Also is there anywhere that states how long certain things stay on your credit report?
- asked by radioactive_babywipes
All Answers:
Answer #1
Your absolutely right. Credit is graded based onour ability to manage accounts ie. number andlimits and your ability to repay. The moreaccounts you have that can demonstrate thisability to repay the better your credit.
- answered by Hiddendepths
Answer #2
Keep the card open with no balance , it willincrease your fica score, I have three cards thatI haven't used in three years , the lenders lookat this as a good risk.
- answered by artic ranger
Answer #3
It depends on the credit cards APR rate.
- answered by k_lubinski
Answer #4
Closing accounts reduce your credit score so ifyou don't want to run up another bill, just cut upyour credit cards... Go to a credit reportingservice online to check your credit score if youreally need to know...
- answered by Just moi
Answer #5
It doesnt depend on the APR...keep the card openand dont use it. If you do use it pay it offmonthly. Keeping it open will boost your creditscore.
- answered by Gordon R
Answer #6
How your credit score is determined is a closelyguarded secret. It's sort of like the baked beanscommercial where the dog knows the recipe but he'snot talking. It's believed that you should haveNO department store credit cards and that theoptimum number of bank issued credit cards is two. If the one you paid off is a department card,have the account closed. If it's one of two bankcredit cards, you may leave it open. As far astrade lines staying on your credit report goes,typically it's 7-10 years, remember a creditreport is your financial history
- answered by Clueless
Answer #7
it's best to cut that credit card up and burn itand forget you ever owned it and do nothing withthe credit company. Let it be. Yes there aresites that give you how long things stay on yourcredit. Most is three years for lenders lookingat your credit. seven years for past dues andnone payment. 10 years for bankruptsy, and chargeoffs.. life time for government payments not madeand student loans. i thinkYour not a good riskunless you use your credit and pay it when it'sdue or before. And your ratio of money coming inas to money going out has to be with in a certainamount.If you get cards and never use them,creditors don't know if you'd pay your bill or notif they gave you credit.
- answered by Betsy
Answer #8
don't close, don't reduce the amount, and actuallyuse it once a month and pay it off - this is thebest route for your credit score
- answered by Byron W
Answer #9
susie orman says not to cancel the card. the cardhelps your credit. Just don't use it. Read herbook, it's helpful, "the young, rich and fabulous
- answered by chill'n
Answer #10
Forget the fairy tales. Close the account!
- answered by indike111
Answer #11
From experience you should use it and pay offright away, that is the safest best way to earn"good" credit. if you let it sit you don't haveany credibilty
- answered by prisongangster
Answer #12
close it and get over with it because it willalways be on your credit history so why keepit?!?!
- answered by Jaz
Answer #13
Don't close the account. Depending on howdisciplined you are, use the credit card likecash. For example, purchase all gasoline orrestaurant meals with that credit card. But youmust, and I repeat you must pay the full balanceoff each month to avoid the fiance charge. Thishelps build your credit and doesn't cost youanything.
- answered by deej
Answer #14
I have to say you just keep your credit cardsomewhere which is not accessible easily from you.Like a safetybox maybe :P haha..Well the thing isthat when we have a credit card, we feel as if wehave more purchasing power that we tend to makelots of purchashing. Closing your credit cardmight not be an option, neither reducing the limitof it. Just keep it.
- answered by williams
Answer #15
close the card. if you have open credit cards,when you go to take a loan or mortgage, the person(underwriter) who decides if you get the loan andwhat rate to charge you MUST take intoconsideration that account, and pretend that thecard is maxed out to determine your "worst-caseScenario" DTI, or Debt to Income Ratio. Same goesfor all open credit lines. So if you have 5cards, with nothing on them, and you apply for aloan, they'll look at you as though all 5 aremaxed out. Close the card.
- answered by torqueymonster
Answer #16
Do not close the a/c, as it could lower yourcredit score.
- answered by sun s
Answer #17
From my understanding you should keep the accountopen while you are reducing the balance. Thisworks to your benefit as far as your credit scoreis concerned. After you've paid off the balanceclose the account.
- answered by BarbKor
Answer #18
Your credit rating is higher when you debt tocredit ratio is at its best. In other words,having a high credit limit with little to nobalance on it will yield a higher credit scorethan having a lower credit limit with the samebalance.That being said, however, if your spendinghabits are poor and you cannot help but to run upyour card, then lowering your limit may be anoption. Simply, you want to avoid being in aposition where your balance and payments are sohigh that you start being late on payments b/cthat will really lower your score. I believe the"high balance" you reach on your car stays for 12months. This means that if you max out yourcredit limit, it will show as your high balance onyour credit report for 12 months. Only after thathigh balance falls off will your score improvefrom it.My practice with credit cards os to usethem for unforeseen emergencies only (i.e.unexpected car repairs, etc.) That way I use itonly for needs most of the time. If I use it for"wants", i.e. travelling, ipods, etc- it isbecause I know I can pay it off within a shortperiod of time, typically. That way, you can livewithin your means, have an emergency source offund should the need arise, and only get "toys"when you can really afford to.If you want moredetailed information on the many things thataffect credit score, and how to keep up yourcredit score, check out Stephen Snyder'swebsite:www.lifeafterbankruptcy.comKeeping a goodscore matters in an age where we pay higherinsurance rates, etc. based on our score!
- answered by DC
Answer #19
In order to earn credibility, one should atleasthave one or two credit cards which should be paidin full each month to maintain good credit score.When lenders look at the credit report and seethat your cards are paid in full each month theybelieve that the person is credible. In yoursituation, if you have two credit cards and youwant to close one account, it will not have anegative impact on your credit score. On theother hand, if credit card company was to closeyour account for any reason, that will surelydecrease your score. Also, it is never a good ideato have department store credit card becauselenders look at that as negative debt. There aretwo kinds of debts: good and bad debts forexample: home mortgage is considered good debt vs.car loan, which is considered bad debt. Therefore,department store credit is not a good ideaalthough at that moment it may seem tempting. Iwould suggest you keep the account open and use itonce in a while only when you know you can pay thebalance in full at the end of the month. Hope thiswill help.
- answered by Jess
Answer #20
Chop up that little plastic loan shark, and closethe account. Never buy on credit. Then, so what ifyour credit score drops a few points if you're notbuying on credit? Why worry about something youdon't use?Use debit cards. Forget the $600 monthcar payments - get what car you can with cash. Ifyou absolutely must borrow for a house, get nomore house than you can pay at least 20% down, andno more than 25% of your take home pay in paymentsfor a maximum of 15 years.
- answered by pater47
Answer #21
I would pay off your balance but leave youraccount open. Credit Card companies hate whenpeople close out their accounts since that meansthey are losing money. You can also call thecredit card place and ask them to reduce youravailable credit. If they say they can't do that,then mention you will probably close your account.They will change their minds real fast and offeryou anything to keep your account.I have closedcredit card accounts before. While I insisted theyclose it, they offered everything to keep it open.They even suggested keeping a credit line of $100and keep the account open. I still closed outtheir accounts.The best way of insuring you willnot use your credit cards is simply cut them upand throw them out. Out of sight - out of mind.When you get another card for renewal, just cut itup and don't activate it.
- answered by Terk
Answer #22
I have a credit card that is basically maxed out.I still haven't paid it all yet. I cut the card upto prevent me from using it while I am stillpaying it off. No one has to know that you don'thave the card anymore. When you pay it off andstill want to keep the account open just say yourecently lost you r card and need a new one.
- answered by mcrystal107
Answer #23
keep it open and just pay what u can on it, itwould be best to pay it and leave it open
- answered by knuckles811
Answer #24
If you are planning to make a major purchase inthe future such as a home or a car, you creditscore will be higher if you just pay off thecredit card and cut it up. Don't cancel it orlower your limit. Part of the criteria used inyour credit score is how much of you allowedcredit limits you have available.
- answered by oscarsmama2
Answer #25
Sweetie, Keep it open... don't use it. If you douse it, charge ONLY like 50 bucks and pay it offbefore the due date! However, those darn thingsare the DEVIL! But in this country credit(good/bad credit) follows you til death's end.
- answered by Precious Flower
Answer #26
It is ok to close old accounts with small limits,because the more accounts you have open the higheryour debt ratio will be. Having a high debt ratiowill affect your score by 35%, closing an oldaccount will affect your score by 10%. It's veryimportant to figure out your debt ratio. But ifyou dont want to close them, cut them up.
- answered by MissLibra
Answer #27
Do not close the card or reduce the balance unlessthe card has a annual fee or you have only had ita few months. Otherwise, keep the card open. Ifyou aren't wanting to use the card just cut it upor freeze it in ice.
- answered by financial-guru
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