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 CreditCards.com, and also writes regularly for MSN Money, Interest.com and Bankrate.com, and has guested on Martha Steward Radio and other programs. See her website SallyHerigstad.com 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,
Which is better if I want to increase my credit score -- lowering
the credit card balances (keeping them open) or closing some of them? I have
six credit cards and have the opportunity either to close two of them or to
lower the balances of all of them. Please advise. -- Maria
Paying off credit cards and closing them are two separate
issues that affect your credit score in different ways.
Closing accounts can help or hurt your credit score. Closing
excess accounts you don't need may help in your case, because you're losing
points by having six open accounts. Try to keep the accounts you've had the
longest, because they reflect more favorably on your credit history. If you do
choose to close an account or two, close the newer accounts and don't close
them at the same time -- space it out over a couple of months.
Closing card accounts can hurt your score if it reduces your
total available credit too much in proportion to your total credit card debt (otherwise known as your credit utilization ratio). Before
you close any accounts, make sure after you do that your total credit card debt
will not exceed 30 percent of your available credit.
In your enthusiasm for improving your credit score, don't
forget your overall financial well-being. Minimizing your interest expense so
you can get out of debt and work toward other financial goals should also be a
1. Make a list of your credit card debts. Include
the balance, minimum payment and interest rate for each account. Add up the
totals for the balance and minimum payment columns.
2. Sort the accounts by interest rate, highest to
3. Decide what to pay first. Consider these factors
in order of importance:
If any account is charged up almost to the
limit, pay it down until you are in no danger of accidentally going over.
Over-limit fees are brutal. Never get too close to your credit limit!
If one or two accounts have significantly higher
interest rates, pay them off completely. This saves you the most money every
month in interest expense.
If the interest rate is very close on all your
accounts, pay off the smallest accounts or the accounts you think you might
want to close. Paying off small accounts gives you a feeling of accomplishment
and reduces your total monthly minimum payments.
4. Next month, continue to pay the same amount you
usually do toward your credit card payments. Only now, because your balances
are lower, less of your payment goes to interest expense and more goes to
paying the pesky balances off.
Your eventual goal for maintaining an optimum credit score
is to have a few long-standing credit cards (not six), that you keep completely
What a great chance to pay off your debts -- not just two
credit card accounts, but eventually all of them. Think of the freedom and
sense of relief that would bring! Good luck, and take care of your credit!
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