So, you just paid off the credit card, now what?

If you pay off a credit card and want to close the account, will it help your credit?

So, you just paid off the credit card that you have had for a long while, do you close it or keep it open? First let me say, Congrats, way to go towards becoming debt free! Nice job!

Now what? If your goal is to keep your credit scores on the rise and isn’t this most everyone’s goal? Especially if you have a large purchase such as a new home or car in your future think twice before you close the account and here is why:

The age of your accounts is one of the factors that is used in many credit scoring models with the three credit bureaus. Length of credit history is 15% percent of your credit score however payment history is 35% of your credit score.

When an account that has been for open a lengthy amount of time and in good standing but is now closed you will lose that ability to show you responsibility in paying the account on time for a long time as well as your payment history on the account.  This account will no longer be used in scoring your credit score and you may see a drop in your credit score for this reason. If you pay off the card and simply leave the account open, you will continue to receive the positive points on that particular credit card. An “aged” account is very beneficial in helping you increase AND maintaining your higher credit score.
Again, congrats on one step closer to being debt free as you pay off your credit cards. Do whatever it takes to not charge it up again. Remembering that credit utilization is 30% of your credit score. Keep your balances low (below 30% of your limit is best) and pay all accounts that appear on your credit report on time or early!

Keep pushing forward, YOU got this!

Images via Creative Commons Images, Katie Ashly Wikispaces and en Wikipedia

 

 

 

Tags: Credit card, Credit history, Credit score, Debt, Personal Finance