Credit Cards -- Keep or Shred

[fosterj]

In the interest of trying to get an improved credit score, does it look better to keep your credit card with a $0 balance once it's paid off. Or to shred it and close the account once it's paid off?

I've heard people say that if you payoff the card and close the account it looks poorly on your credit record. Is this true?

Edit-----
Also what about the idea of lowering the limit? Say I have a CC maxed out at $6000.. I pay $1K on it then call the bank and get my CC limit lowered to $5000. Does this look good or bad?

[AmbitiousSaver]

I would just shred it and keep the account open

BUT if you close a recent account it "shouldn't" affect your credit record too much.

I closed a $2K credit limit credit card I got in 1999 since I hadn't used it in YEARS. And it didn't seem to affect my credit too much... I have a 730 and DH has a 746. No CC debt in my name and he has a 10K balance on his. But I do know it will affect your credit score... by how much depends on a few other factors too.

But I felt good closing it nonetheless... I want to lower DH's CC limit from $30K to $10K... I just have a fear that if its there... we would try to use it one day... but instead of doing that we just shredded his credit card. All credit cards we keep in a safe so we never take them out.

[maat55]

In the interest of trying to get an improved credit score, does it look better to keep your credit card with a $0 balance once it's paid off. Or to shred it and close the account once it's paid off?

I've heard people say that if you payoff the card and close the account it looks poorly on your credit record. Is this true?

Edit-----
Also what about the idea of lowering the limit? Say I have a CC maxed out at $6000.. I pay $1K on it then call the bank and get my CC limit lowered to $5000. Does this look good or bad?

You never want your balance to exceed 50% on your card, lowering your limit will only keep your balance ratio too high.

The best way to build good credit is with good money management. Use your card only for purchases you would normally pay in full, like gas. Pay your bills on time and save money. You can do 0 interest purchases when you have money waiting to pay the bill before you have to pay the interest.

Do not worry so much about your credit score. Stay out of debt and save money, do not think you have to buy your credit score. Remember this, when someone offers you a good rate on borrowing, it's usually because the product is over priced. In other words, pay cash for a good deal, do not borrow for a bad deal.

Read books on personal finance, I suggest you read these books:

The Total Money Makeover by Dave Ramsey
The Millionaire Next Door
Rich Dad Poor Dad
The Wealthy Barber
Master your Money by Ron Blue
The Richest Man in Babylon

What you can learn from these books at your age, will make a huge difference in your future. Do not wait until you are older to learn to manage money. Good luck.

[Seeker]

You never want your balance to exceed 50% on your card, lowering your limit will only keep your balance ratio too high.

The best way to build good credit is with good money management. Use your card only for purchases you would normally pay in full, like gas. Pay your bills on time and save money. You can do 0 interest purchases when you have money waiting to pay the bill before you have to pay the interest.

Do not worry so much about your credit score. Stay out of debt and save money, do not think you have to buy your credit score. Remember this, when someone offers you a good rate on borrowing, it's usually because the product is over priced. In other words, pay cash for a good deal, do not borrow for a bad deal.

Read books on personal finance, I suggest you read these books:

The Total Money Makeover by Dave Ramsey
The Millionaire Next Door
Rich Dad Poor Dad
The Wealthy Barber
Master your Money by Ron Blue
The Richest Man in Babylon

What you can learn from these books at your age, will make a huge difference in your future. Do not wait until you are older to learn to manage money. Good luck.

The barts bolded above are excellent advise and true. I don't make recommendations about books because a lot of times "parts fit" and other parts do not fit and in fact, don't make financial "lowest cost" sense. You gotta read with full awareness of all the angles to the recommendations.

But basically keeping a $0 balance by paying in full each and every month builds that credit score faster than anything else. It shows a regular consistent behavior ("good money management") and not using a card does not show anything except that you've not used it. It's okay to keep use of one card and pay-in-full each month and keep $0 on other cards; that too works.

[maat55]

The barts bolded above are excellent advise and true. I don't make recommendations about books because a lot of times "parts fit" and other parts do not fit and in fact, don't make financial "lowest cost" sense. You gotta read with full awareness of all the angles to the recommendations.

But basically keeping a $0 balance by paying in full each and every month builds that credit score faster than anything else. It shows a regular consistent behavior ("good money management") and not using a card does not show anything except that you've not used it. It's okay to keep use of one card and pay-in-full each month and keep $0 on other cards; that too works.

I know these are english words, but all I'm seeing is greek. Please explain.

The reason I refer books is because, you spend more quaility time learning personal finance from them. Instead of asking where the next town is, I just give them a full road map.

[Onwards]

Credit score calculations look favorably on having credit cards open for a long time. I used to close unused credit card accounts because I thought it was better "housekeeping" but when I pulled up a credit report analysis, it said that I'd never had a credit card account open for over 2 or 3 years, and while I'm not sure that hurt my score, I'm sure it didn't help it. If you have a credit card account open for, say, 7 years and never use it, I think that's better than having the account open for just 1 or 2 years. The only reason I would close it is if I can't control my spending, but in that case, shredding could do the trick.

[Seeker]

I know these are english words, but all I'm seeing is greek. Please explain.

The reason I refer books is because, you spend more quaility time learning personal finance from them. Instead of asking where the next town is, I just give them a full road map.

Ok, here's a very common example: I see written a lot of times to "pay off the lowest $ amount of credit card debt first." This does not make sense to me. -- If I owe $1k at 6% interest, and I also owe $5K at 7% interest, then it makes the "lowest cost" sense to put that 1k dollars toward the higher interest rate debt. I know that there's a psychological advantage to clearing the 6% debt entirely, but it's not the best financial advise because by paying that off you're adding a slight bit more future interest payments to make toward the higher interest rate debt.

Reading books is fine... they are a great source of information and ideas.... but not everything applies equally for everyone. Some recommendations make more sense for people based on their goals and needs in life -- and others do not. Some books are also contradictory; in one place they make a recommendation and in another they contradict themselves.

We all need to read and think about what we've read. Does it apply to us? How can we use this in our situation? These are the kinds of questions I ask myself when doing this kind of educational reading.

[Exile]

As a retird bill collector, I would advise you to shred the cards, fosterj, but don't close the accounts. As othe posts have stated, cancelling your account(s) can put your credit rating at risk by negatively affecting your debt-to-available credit ratio.

[maat55]

Ok, here's a very common example: I see written a lot of times to "pay off the lowest $ amount of credit card debt first." This does not make sense to me. -- If I owe $1k at 6% interest, and I also owe $5K at 7% interest, then it makes the "lowest cost" sense to put that 1k dollars toward the higher interest rate debt. I know that there's a psychological advantage to clearing the 6% debt entirely, but it's not the best financial advise because by paying that off you're adding a slight bit more future interest payments to make toward the higher interest rate debt.

Reading books is fine... they are a great source of information and ideas.... but not everything applies equally for everyone. Some recommendations make more sense for people based on their goals and needs in life -- and others do not. Some books are also contradictory; in one place they make a recommendation and in another they contradict themselves.

We all need to read and think about what we've read. Does it apply to us? How can we use this in our situation? These are the kinds of questions I ask myself when doing this kind of educational reading.

The smallest to largest, largest to smallest is a well beaten path around here. It's whatever floats your boat. But all these books are very good information and entertaining.

I've read a book on estate planning and now my estate is in order. I read a book on getting out of debt and now I'm out of debt, and so on. I believe books are more thorough information than a few answers on a forum. Peace my friend.