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Dear Dr. Don,
My credit card has both an annual fee and a high interest rate. If I pay it off and close that account, will it bring my
credit score down? Or should I leave it open and keep paying the fee?
-- Chad Charger
Dear Chad,
Paying it off should improve your credit score. Closing the account will have a negative effect on your credit score. You
need to dig a little deeper to decide what's best for you.
The Bankrate article, "Closing
credit card dings credit score" explains some of the issues in greater depth.
Your credit score is based on the information on your credit report. The score breaks the information into
five groupings. The graphic below show the grouping and how they're weighted in calculating your credit score.
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| Elements of your FICO score |
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Closing the account reduces the length of credit history of your accounts. It also changes the credit usage
ratio that measures the outstanding balances against your available credit.
That said, you don't want to spend a lot of money on annual fees just to keep up your credit score.
Take a look at your credit report and score to see where you stand. It'll help you decide if you have enough
account relationships and credit history that you don't need this account to hold on to a good credit score.
If this is your only credit card, find a new one before pulling the plug on this one. You can shop cards on
Bankrate using its Advanced credit card search feature.
While you can get one free copy of your credit report each year from each of the three principal consumer
reporting agencies, you typically pay to receive your credit score.
However, TransUnion has agreed to provide free credit reports, credit scores and credit monitoring for a
period of time as part of a recent class action lawsuit settlement. The Bankrate feature
"TransUnion settlement offers free credit monitoring"
explains the terms in greater detail.
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