Use Credit Wisely to Improve Your Credit Score and Save

To close or not to close? That is a common question among consumers trying to improve their credit scores. Is it better to close credit card accounts that have a zero balance or keep them open to improve one’s credit score?

Many financial experts recommend that consumers keep debt-free credit card accounts open if they are considering refinancing a large purchase in the near future, such as a new home or vehicle. One of the common considerations in determining a credit score is your “debt-to-available-credit ratio.” Therefore, closing the zero-balance accounts may actually lower your credit score. And, higher credit scores typically earn you a lower interest rate on loans. High outstanding debt, on the other hand, will definitely lower your credit score for the same reason — the debt-to-available-credit ratio.

TFCU advises members to use credit sparingly. As a short-term strategy to improve your credit score, keeping the zero-balance accounts open might be good advice. Long term, however, those zero-balance credit cards are just too tempting for some shoppers to leave alone. They would be better off closing all high-interest credit cards. Financial experts typically recommend that consumers keep a couple of low-interest cards for emergencies.

Definitely do not go out and open a number of new credit cards that you don’t need just to increase your available credit. This approach could backfire and actually lower your score. Lenders may be leery of offering credit when they see this flurry of activity on your credit report.

The best way to build and maintain a good credit history and high credit score is to pay your bills on time, stop charging and pay down your revolving credit. TFCU offers free financial counseling for members who need help getting their debt under control or you can visit our Credit Coach online.

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