Keep That Credit Card Open

Don't close it just yet. Having an open credit card account can actually help your credit score. What's that? Am I actually saying you should have open credit?

Yes. Yes, I am. And here's why:

Your credit score is based on a variety of things, from how you pay your bills to how many inquiries you have and yes, even the number of credit accounts you have and how long they've been open.

The longer the account has been open, the better. The bigger the difference between your limit and your balance, the more your credit score goes up. But the score doesn't evaluate each card separately. It totals up your balances and your limits and then finds the average percentage of the lot. Close that paid off account and you've just eliminated a chunk of "available credit", something that can add points to your score.

And the longer that paid off card remains open and available, the better your credit score will become.

But here's the caveat:

• You need to keep the balance down. Charge something small every so often but then pay it right back off at the end of the month. This will show continued "on-time" payments without paying interest for carrying over a balance from month to month.
• Keep cards that don't charge an arm and a leg in fees. If your credit card is one of those that charges the annual "member fee", consider switching to another card that doesn't.
• Use that extra cash each month wisely. Now that you no longer have a credit card payment, don't blow the extra cash. Instead, use it to pay off some of your other debt or tuck it away in a high-interest money market account for a rainy day.