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FICO score and recent credit card payoffs

poignant 97 26 December 21, 2015 at 10:09 AM
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I had a high amount of credit card debt (around $30k), which I just paid off with a windfall of cash from some work that I did as a contractor. This was spread across about 7-8 cards. My question is: should I close some of the accounts, or leave them open with 0 balance? Is 0 balance bad for my credit score? My goal is to remain as debt-free as possible, but I would also like to have 1-2 very good credit cards with an excellent interest rate.

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Joined Jul 2008
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#2
If you trust yourself to use your credit cards responsibly, then there is no reason to close any of the accounts. Having a statement balance of $0 doesn't hurt your score. If a card goes unused for long enough, the lender might close your account due to inactivity. Always pay your statement balance in full before the due date to avoid paying any interest.

Your stated goal of remaining debt-free while still keeping just a few good cards open in order to help maintain your credit score would suggest that closing a few cards might be a good idea. It reduces the temptation to spend and makes it easier to keep track of your open lines of credit to watch for fraud. To minimize any hit to your score, try to keep your oldest cards open. This will keep your average age of accounts higher which is good for your credit score. Also try to keep your total available credit limit across the cards high. This makes it easier for you to keep your percent utilization low, which is good for your credit score.
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Joined Feb 2004
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#3
Quote from poignant View Post :
I had a high amount of credit card debt (around $30k), which I just paid off with a windfall of cash from some work that I did as a contractor. This was spread across about 7-8 cards. My question is: should I close some of the accounts, or leave them open with 0 balance? Is 0 balance bad for my credit score? My goal is to remain as debt-free as possible, but I would also like to have 1-2 very good credit cards with an excellent interest rate.
A zero balance is not bad for your score - it's usually pretty good, in fact. Accounts that have been open for a long time are also really good for your score, so in a perfect world you don't want to close anything. However, that all hinges on you being able to control your spending and pay off all cards in full every month. If you wind up with $30k in CC debt again, that will do bad things to your score.

Given your last statement ("...with an excellent interest rate"), it seems that you may not trust yourself not to fall into the debt hole again. The interest rate on a CC should really not matter, since you should never pay interest on the CC to begin with. If that's the case, then you should probably close some, if not all, of the cards. Or keep a couple open but shred the cards so you're not tempted to use them.
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Marshall: Have the rest of you guys figured out by now that mmathis is the smartest guy on SlickDeals?
#4
zero balance on a CC won't hurt your credit history but make sure those cards don't have annual fees. if they have AFs, it would be best to just close them; closure initiated by customer won't hurt your record. if they have no AFs, you can just put them in the sock drawer, use them a couple of times for small purchases and pay them off immediately. if this happens to be one of your oldest card and it has no AF, keeping this active will actually help your credit history in terms of AAoA aka average age of account. But if you're paying even a minimal AF on it, it may not be practical to keep it just for AAoA.

as to 'excellent interest rates', it is zero for me. I can honestly say that ever since I started using CCs, I have not even bothered with interest rates because I have not and dont intend to pay any interest. I've managed to pay all charges I put in each card on or before the due date. I know it requires a lot of discipline to use CCs and use it only if you know you can pay it off in full when statement comes; CCs requiring payment only of a minimum amount is a trap that leads to deep debt if one is not careful.

If you develop the habit of paying your CCs in full by the due date, you don't have to worry about interest rates. you can then concentrate on cards that gives the best rewards in terms of miles/hotel points/cashback depending on your goals.
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