Pay off balances or close accounts to boost credit score?

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,
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

Answer for the expert

Dear 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 top priority.

Here's how to use this opportunity to pay off some debts to your best advantage:

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 lowest.

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 paid off.

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!

See related: Do's and Don'ts when closing old credit card accounts, Canceling a credit card and your credit score, Learn the ABCs of credit scores, credit scoring, How to pay off $11,000 in card debt in three years

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Updated: 03-18-2019