One of my credit card companies says it will soon start charging an annual fee. I'd like to close this card — I don't use it — but I worry that will hurt my credit scores, and we may be buying a car soon. What should I do?
It's easy to be paranoid about credit scores: They play a large role in determining the terms you'll be offered on loans and property insurance. The reality, however, is that they aren't a measure of your financial health — just your ability to pay your debts. Even if your scores are dinged (because closing the account would lower your available credit), they will recover if you continue to use the credit you have responsibly. So be mindful of your scores, but don't let a bank leverage your fears for its own profit. Closing an account can be an enormously satisfying way of letting the bank know you're mad as heck at its fees and you're not going to take it anymore.
Remember it's debt that's bad, not plastic.
So your wallet is thick with credit cards. Don’t worry. The leading credit-scoring system, from the Fair Isaac Corporation (FICO), doesn't punish you for having lots of cards — so long as you don't run up big balances. In fact, access to plenty of credit is good for your scores. Americans, on average, have 3.5 cards, according to a Federal Reserve Bank of Boston study, and you can have many more while still maintaining stellar credit scores. The key is to use your cards lightly but regularly — and to pay them in full every month.
1. Use your cards, but use 10 percent or less of your credit limit.
2. Pay on time. A late payment can knock off 100 points.
3. Check your credit report for errors, including accounts that aren't yours.
If you have excellent scores — 750 or above on the 300-to-850 FICO scale that many lenders use — and several other open credit card accounts, you have little to fear from closing one account. Even if it's your oldest or highest-limit card — the kind of account you would typically want to keep open — your scores will bounce back. If you're still worried, just put off closing the account until you get the loan you want.
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