Dear Deborah,
Q: I recently received a copy of my credit report and saw that there are a lot of old credit cards that we no longer use. Should we write to the companies and cancel these credit cards? We are trying to improve our FICO score. Thanks. -- Winnie and Neal
A: If you no longer need these old credit card accounts, consider closing most of them. In fact, with the new federal credit card law in effect, many card issuers are deciding to close inactive accounts.
Keep one or two credit cards for convenience, but pay off the whole bill at the end of the month. It's difficult these days to reserve a hotel room, rent a car, or purchase plane tickets without a card.
When deciding which cards to keep and not cancel, retain a low-rate card that you've had for a longer time period. The length of your credit history is important to your score. Do ditch credit cards that carry an annual fee. There's no reason to be charged for the so-called distinction of carrying a credit card. Cancel the cards with annual fees and higher interest rates.
Cancelling the unnecessary cards can help protect you from fraud. Every year more thefts of credit cards and unauthorized charges to accounts are reported. According to The Wall Street Journal, Privacy Rights Clearinghouse reports that "more than 250 million records containing personal information have been lost or stolen since 2005."
Closing the accounts also helps rein in the temptation to spend. Studies show people spend more when they have credit cards handy. Since the payment doesn't feel as real (as using and counting cash), it's easier to make purchase transactions.
Growing numbers of consumers have been using credit cards for basic everyday purchases, increasing their amounts of revolving debt. Research firm RiskMetrics Group reports that the "plastic-fueled spending spree" has led to record levels of card delinquencies. The numbers of these card delinquencies have been shooting up from historically low levels.
Consequently, this has led card issuers to get tougher on borrowers. You may have noticed that as banks have pulled back on lending, issuers are slashing credit limits and increasing interest rates.
As to credit scores, they will vary slightly from one credit bureau to another. Your payment history is a critical factor. According to Zero Credit Report, credit grantors consider the following listings as negative:
1. A history of late payments
2. Having been in a bankruptcy
3. Having been charged off
4. Put in repossession
One of the biggest factors in keeping a good credit score or in improving your credit score is to always pay EVERY bill on time.
Copyright 2010 Deborah Nayrocker. All rights reserved. Permission to reprint required.
May 5, 2010
Deborah Nayrocker is the author of The Art of Debt-Free Living and the popular Bible study Living a Balanced Financial Life. She is an award-winning writer and columnist.