Finally got a zero balance? Good! Now change credit strategy


To Her Credit
To Her Credit, Sally Herigstad
Sally Herigstad is a certified public accountant and the author of "Help! I Can't Pay My Bills: Surviving a Financial Crisis" (St. Martin's Press, 2006). She writes "To Her Credit," a weekly reader Q&A column about issues involving women, credit and debt, for, and also wrote for MSN Money, and, and has guested on Martha Stewart Radio and other programs. See her website for more personal finance tips and free budgeting worksheets.
Ask Sally a question, or read her previous answers in the To Her Credit archive

Dear To Her Credit,
I have several department store credit cards, about four, that I no longer use. I've had a zero balance on all of them for over a year.

I want to cancel these cards, but I don't want my credit score to be affected. I'm more concerned that someone would hack my account and charge on them. You never know. I've worked very hard paying them off and live on a cash basis and one debit card -- yippee! It's the only way to go.

Should I cancel all the cards? -- Mary


Dear Mary,
Congratulations on paying off all your department store cards! Becoming debt free is a huge accomplishment.

You probably don't need four department store credit cards. You can surely close at least some of them without a significant drop in your credit score. Canceling all of them if you have no other credit or loan accounts, however, is another matter.

Before you worry too much about small changes to your credit score, however, think about when you need your credit score and for what purpose. Yes, credit scores are important. You need a good score when you apply for credit, but it doesn't sound like you're planning to do so soon. If you're buying a house in the near future, you'll want to keep your score up. In less common situations, such as applying to rent an apartment, you may need to show a good score.

Even if you are buying a house next month, a tiny fluctuation in an excellent credit score due to closing a department credit card probably won't make any difference. It's more important that you look after your total financial picture -- for example, by staying out of debt -- than to worry about five or 10 credit score points here or there.

Closing all your department store cards, so you have absolutely no open credit accounts, could have a far greater impact on your credit score, however. Your credit history for an account doesn't disappear when you close it, but it doesn't maintain well or continue to build, either. If you close all of them, your credit score will definitely suffer.

In addition, having a department store card where you regularly shop can help you save money. I have two department store cards, both of which give me discounts for using the card. The discounts are not enough to tempt me to spend more money, but they save me more cash than I would leave lying on the floor. I always, always pay them off every month.

After you've finally paid off your cards, it may seem crazy for me to suggest that you keep and actually use your favorite card or two. But I'm confident you can do it without going back into debt.

You may even want to consider getting one general purpose credit card and using it occasionally. You don't have to use it a lot, and you certainly don't need to carry a balance. Having at least one card makes life easier and will help you maintain your good credit score. It doesn't have to mean sliding back into debt. Just practice the good financial habits you've already learned. Use credit cards as payment tools, not as long-term vehicles for debt. Try not to buy anything for which you don't already have cash in the bank, and keep an emergency fund, so the next time your car breaks down you can pay for repairs. 

You can close all your cards if you want, but doing so will affect your score. Consider keeping one or two that you actually use -- perhaps the ones with the longest credit history. Don't be afraid to open a regular card for the sake of convenience and maintaining your credit.

The fact that you worked so hard to pay your department store credit cards off tells me you learned a great deal in the process. Trust yourself to stick to the financial habits you've established. I'm confident you can stay out of debt -- and take care of your credit!

See related: Closed accounts affect your credit score, but maybe not how you think, Retail cards, the Rodney Dangerfields of credit, deserve respect, Retail card survey 2014: APRs get higher, rewards more complicated 

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Published: May 22, 2015

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