 Managing your credit score
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 Dear
Dr. Don,
I paid off a couple credit cards, but I'm afraid to cancel them
because last time I did it lowered my credit score. What's the best
way to cancel the cards without lowering my score?
Thanks,
-- Tracey Triage
 Dear
Tracey,
Your credit score is based on the information in your credit report. According to myFICO.com the information is grouped into five categories and carries the following weights:
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Information your credit score is based on: |
|
| Payment history |
35 percent |
| Amounts owed |
30
percent |
| Length of credit history |
15 percent |
| New credit |
10 percent |
| Types of credit used |
10 percent |
| Total |
100 percent |
In general, if there's no annual fee on the credit
card, and you're not carrying a balance, closing the account does
more harm than good to your credit score in the short run. Put the
cards away in a safe-deposit box instead of closing out the accounts.
Closing accounts can work against you in two ways:
It can shorten the length of credit history of your accounts, reducing
the average age of your accounts, and it reduces the ratio of credit
used to credit lines available. Keep in mind that even though the
account is closed, the account's payment history remains on your
credit report. Negative information is reported for seven years.
On the plus side, reducing the credit lines available can increase
your capacity to handle new credit.
What's on the horizon for you in terms of applying
for new credit? If you don't plan to apply for credit any time soon,
you can take a longer-term approach to managing your credit score.
With that approach you could close the accounts and also bring down
your outstanding balances on your remaining cards, minimizing the
impact of these closed accounts on your credit score.
To ask a question of Dr. Don, go to the "Ask the Experts" page, and select one of these topics: "financing a home," "saving & investing" or "money."
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