You used a balance transfer to pay off your credit card debt — that’s great! Having less debt — or no debt — is the best way to improve your credit score. And using a 0 APR credit card to get there saves you interest, allowing you to throw more cash at your balance.
Your zero interest credit card served its purpose. Now that its interest rate has kicked in, should you keep it? Yes, along with the one you’ve paid off. Here’s why:
- To preserve the length of your credit history. The amount of time your credit accounts have been open makes up about 15% of your credit score. If the card you’ve paid off has been with you since the very beginning, keep it open, even if it’s seen some misuse. It will improve your score in the long run.
- To maintain your available credit. Your credit utilization rate — that is, how much of your available credit you’re using — is a major piece of your credit score, about 30%. The more credit you have available from month to month, the higher your score. Closing a credit account, especially one with a high limit, decreases your available credit and your score.
- To avoid repeated applications. Applying for a new card dings your score for about a year, so there’s little point in closing an account if you’ll just apply for another later. Keeping the cards you have — as long as they don’t have high annual fees — ensures that you don’t experience more credit inquiries than necessary.
- To keep positive information on your report. If you don’t carry a balance on an account, it ultimately looks good on your credit report — and if you keep that account open, it will appear on your report forever. But if you close an account, that good information drops off your report within about 10 years.
Closing a credit account won’t help your credit score, but if having more credit always causes you to overspend, you may still want to shut an account or two. Make sure not to close accounts all at once, and keep at least one open, reserving it for emergencies. If possible, ask for a credit limit boost to reduce the impact on your available credit.
Ideally, however, you’ll keep paid accounts open. Using them to pay small monthly expenses, like your utilities or cellphone bill, is a great way to take advantage of the credit you have without running up a balance.
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