Jim, Should I Pay Off And Close My Credit Card Accounts?

I have just received the proceeds from a home equity loan and have been considering paying off my credit cards and closing the accounts.  I heard you on the radio suggesting that doing this might hurt a person’s credit score, what should I do?

This is one of those questions that I have to be very careful to completely explain myself, so that I am not misquoted later.  Yes, paying off your credit cards is not just a good thing, it is a great thing to do!  The second step you are planning, closing the accounts, may not be so good.  Most people believe that if they have an open credit card account they are obligated to use it.  My suggestion is to keep at least 4 credit card accounts open and keep very low balances, this is the key to achieving a very high credit score.  Nearly one third of the credit scoring model is based on the balances that are maintained on credit card accounts!  If you keep a low balance in relation to your available credit line, you will be graded very favorably by the credit scoring models.  This means that you all you have to do to get these extra credit score points is pay off these accounts and leave them open.  If you do occasionally use them, do not use more than about one third of the available credit in any given month and then pay it off completely when the bill arrives. 

I have an e Book on this topic, Credit Scoring Secrets which covers this and dozens of other credit scoring issues in great detail.

My main website is www.christianmoney.com

Agree or disagree, click on comments below. 

James L. Paris

Comments

[Janet H]

What if of the 4 credit cards you have open (total combined available credit of about $29,000.00) the total balance is $9,700.00 and $6,300.00 of that is on one card? When you say to keep balance 1/3 of available credit, does it matter if the majority of that 1/3 is on one card? 2 of my 4 cards have a zero balance.