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When in credit card debt, once you have paid off one of your credit cards is it smarter to close the account or keep it open?

When in credit card debt, once you have paid off one of your credit cards is it smarter to close the account or keep it open?

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You should probably leave the account open.

If you are curious about improving your credit score (most typically defined as a FICO (Fair Isaac & Co) score, it is important to understand how your credit score is calculated. Your credit rating is calculated based on several variables, including: your payment history (do you have any late payments, charge-offs, etc.), the amount and type of debt that you owe, if you have maxed out any of your trade lines (credit utilization), and then several other secondary factors like the length of your credit history and how many recent inquiries have been made to look at your credit history.

By leaving your account open, you have an account staying listed on your credit report with a "good" payment history, it might be beneficial if it has a long account history, and lastly it will positively impact your utilization calculation since you have nothing borrowed on it.

HOWEVER, don't get lured into using it and running up debt in the future (consider putting it in a bowl of water and freezing it in the ice-box, so you cannot use it impulsively!)

These are a few of the considerations. If you would like more information, please visit our credit solutions page.

We hope that this helped you to Find, Learn, & Save!

Bill.

www.bills.com

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  • BA
    Bill,
    Oct, 2008
    You can typically only qualify for a reduced principal settlement if you are delinquent for several months, and have a financial hardship. Settling your debts will also have an adverse impact on your credit score, so if you have perfect credit and can afford to pay your debts you must evaluate the pros and the cons, but yes, you can do this yourself.
    • JR
      Judy,
      Elizabethtown, KY,
      Feb, 2011
      My New Year's Goal this year is not to take on any new debt if possible and to pay off my credit cards one at a time. So far paid off 4 credit cards and working one then the other, ect. Have to keep on track and not more careless spending as I am now retired.
    • BA
      Bill,
      Feb, 2011
      Awesome! That is probably the best financial gift that you can give to yourself Judy. Hang in there, be smart and remain on your plan... and check back in when you are indeed finally debt free! Let us know how the journey goes, and thanks for checking in!
  • SC
    sal,
    Oct, 2008
    i want to pay off about 45k in credit cards and have the cash to do so--can i make a deal on my own to pay them off in full at a redused cost?
  • BA
    Bill,
    Sep, 2008
    The “R9" account status is a code used by some consumer credit reporting agencies to indicate a revolving credit account which has been “charged-off” by the creditor. “Charge off” is an accounting term used by creditors, meaning that a creditor has transferred an account from its “accounts receivable” books to its “bad debt” ledger. While an account in R9 status is not as bad a bankruptcy, it does have a major impact on your credit. You have to weigh the savings provided by this settlement against the negative effects the charge off is going to have over the longer term. Given time your credit will recover.
  • JB
    Juley,
    Sep, 2008
    I have a revolving credit line that is delinquent but still with the original issuer (not in collection). I discussed a settlement offer with a representative and they were willing to do that but said that it would show as an R9 on my credit report, which, they claimed, is regarded similarly to a bankruptcy. Is that true? Am I better off to bite the bullet and pay the higher balance and greater interest over a long period of time?
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