A few weeks ago, Money Coach Bill Stanley shared the story of a New York couple's success at paying off $88,000 in credit card debt in under four years. After that segment aired on FOX21 Morning News, he said a Southern Colorado couple emailed him to share their triumph of paying off $80,000 in debts and loans.
With that email, though, came the following questions: “What do we do with our cut-up credit cards – keep them open or formally cancel them? Which way would help us improve our credit score?”
Stanley said the answer really depends on the type of credit card user we are.
“Credit card abuse is like an addiction” he said. “If the card is available, it might be misused. Even if the card is cut in half or sitting in the freezer, that account is still active and the number can be used or misused for purchases like an around the world plane ticket or a big screen TV.”
His recommendation for abusers? Formally cancel all the cards after they are paid off by sending a letter to each company. Having no open credit lines may impact your credit score, but Stanley said the potential for future misuse of those cards is a more important issue to tackle first.
For those of us who are more disciplined about using credit cards, Stanley said it's a good idea to keep one or two cards active – but be sure to pay that balance off each month.
“It's my understanding that an active credit card with a zero balance has little, if any, effect on your credit score,” he said. “The same goes with debit cards.
“The credit score software looks at how much you owe at any particular time compared to the credit card limit. It also is strong on paying on time. Therefore, it's wise from a credit score perspective to have a small amount on a credit card with a high limit.
Credit history is almost an important factor in your credit score, he said.
His recommendation for better-behaved consumers? Keep two cards – one that you've had the longest, and one with the highest credit limit. Cut up the rest and send letters formally canceling them. Make one small purchase every month on each card, and pay each bill in full with every statement.
Then, periodically ask the credit card companies to increase the limit on each of your two remaining cards. It may take awhile, Stanley said, but if you persist you can raise the limit... which in turn will help raise your credit score.
Bill Stanley and Money Matters airs every Tuesday on FOX21 Morning News.
If you have a question (or a success story) for Bill, contact him directly: moneycoachbill@aol.com
TV Station Profiles & Public Inspection Files forKXRM