Expert Q&A

Do you keep a card with a monthly fee?

To Her Credit columnist 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.

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Question for the expert

Dear To Her Credit,
I have a credit card that charges a monthly fee. The card is currently paid in full, and I don’t plan on using it ever again. Even if I don’t use it, I have to pay them just to have it.

I would like to close this account even though it was useful in helping me re-establish my credit. I have a Capital One credit card with a lower interest rate and no fee now. Should I close the one with the monthly fee? — Lanesia

Answer for the expert

Dear Lanesia,
A credit card with a monthly fee? Look for the customer service number on your statement and call it to close that account today.

It was probably worth it for you to pay a monthly fee when you needed help re-establishing credit. However, you can do better now. And don’t worry — closing one account won’t make enough of a difference in your credit score to outweigh the very real damage to your cash balance of keeping it.

You may have heard that you shouldn’t close your oldest credit card accounts because you get more points on your credit score for accounts you’ve had longer. That’s true. If you’re planning to buy a house or apply for other credit, go ahead and apply before you close this credit card account.

You don’t say how much the monthly fee is. If it’s only $7 per month, it may seem like a small price to pay to avoid taking a small, temporary hit to your credit score. However, looking toward the future, you can see the price is far too high. If you keep the card for just one year, you’ll pay $84 annually.

Getting rid of small monthly fees and expenses is one of the most important things you can do to take control of your personal finances. It’s not just the one small monthly fee we can easily pay on one card, but it’s the few bucks more we pay for a magazine we never read or another few dollars there for an Internet subscription we don’t use. It’s like we’re walking around with holes in our wallets with a few dollars dropping out here and there as we go about our day. It can turn into a regular torrent of a money leak if we don’t review insurance coverage every year to make sure we’re getting the best deal and just the coverage we need. It all adds up, and it can make the difference between staying in control of our finances and wondering where in the world all the money went.

After you close this account, you’ll probably want to establish one or two more credit accounts. (Yes, applying for more credit will also ding your score. It’s small, it’s temporary and it’s for a good cause!) You could get one more credit card, perhaps one connected to a store where you do business and where you get special perks. You might want a gas card or one associated with a discount club.

When you have a few credit accounts, stop. There’s no need to fill your wallet with plastic; in fact, that’s not a good idea.

Sometimes it seems that doing the best for your finances is slightly at odds with doing the best thing for your credit score, at least in the short term. When that happens, I’ll take the best thing for my finances, almost any day. A good credit score is important, but your score is more likely to follow your general financial health than the other way around. Take a long-term approach to improving your finances, and for the most part, your credit score will take care of itself.

See related:How to cancel a credit card, FICO’s 5 factors: The components of a FICO credit score, Obsessing over your credit score

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