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I pay my credit cards off every month, but I have one I no longer use. Is it better for my credit to close out the card or just leave it open and unused? I've heard both ways, thanks.
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I pay my credit cards off every month, but I have one I no longer use. Is it better for my credit to close out the card or just leave it open and unused? I've heard both ways, thanks.

As with nearly all things credit scoring, the answer is "It depends".

How many other credit cards do you have? What is the total of the credit limits with and without this account? How much do you typically charge on your accounts each month? What is the age of this account compared to other accounts that you have?

Unless you have a negative comment on your credit score that has to do with 'too many accounts', it's generally best for your credit score to leave a credit card open, as it will help decrease the % of credit utilized, which is a major factor in your credit score. This is especially true if this account is one of your oldest accounts and/or one of your highest credit limit accounts.

AJ
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Thanks so much for your help. I'm 20 years old and I only ahve 2 credit cards, one has a $1,700 limit and one has a $500 limit. The only reason I got the newer one ($500) was because Amazon.com had a deal going but they didn't approve me for enough money to get the item I wanted so I ended up having to put it on the other card anyway. I have never had a late fee and I pay it off every month. I'm just trying to build my credit score and didn't want there to be any problems about having too many cards. What other ways are there to build my credit?

This might be a stupid question, but is there a program that can keep me up to date on how much balance I have on each card and when the payments are due? Thanks
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Yep, Quicken

Quicken is a great piece of software that helps you track all your accounts. I would just get a copy of Quicken Basic. You can set up reminders in the program to make sure you pay your bills on time, etc.

If you are only 20 and you have so few cards, might as well keep it open. Credit limits increase on their own over time, and it will help build your history, as long as you keep the cards active (run a small charge on them every few months).

Lara Amber
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Thanks so much for your help. I'm 20 years old and I only ahve 2 credit cards, one has a $1,700 limit and one has a $500 limit. The only reason I got the newer one ($500) was because Amazon.com had a deal going but they didn't approve me for enough money to get the item I wanted so I ended up having to put it on the other card anyway.

With 2 relatively low limit cards, and relatively new cards (since you are 20, the cards are, at most, 3 years old, right?), you would probably be best off not closing either card.

I'm just trying to build my credit score and didn't want there to be any problems about having too many cards. What other ways are there to build my credit?

With only 2 cards, you shouldn't be worried about 'too many cards', IMO.

Is there a particular goal or purpose for building your credit score?

To build your credit score, the best way is to continue to make your payments in a timely manner every month, and to use less than 10% of your available credit limit each month. Since your available credit is $2,200, this means that you should charge a maximum of $220 each month. If you do want to charge more, then it would be best to pay the total balance down to below $220 before the end of the billing cycle (when the statement prints).

Additionally, a mix of different types of credit accounts can help to build your credit. You could get a store card, and use it once or twice every few months. An installment loan (student loan, auto loan, savings secured loan) would also add a different type of credit onto your account, if you can obtain one of these for a relatively low cost.

AJ
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If you are only 20 and you have so few cards, might as well keep it open. Credit limits increase on their own over time, and it will help build your history, as long as you keep the cards active (run a small charge on them every few months).


Greetings, LaraAmber, emphasis above is mine. To your excellent advice I would add only that if you have an ongoing balance on a card that you have not already paid off in full (that is the real goal), it may be sufficient for regular paydowns to serve as activity on the card so that you don't incur the kind of interest structure that traps your pre-existing balance at a lower interest rate beneath any purchases subject to a higher interest rate. So LaraAmber's advice ought best to be interpreted as running a small charge every few months on a card WITH NO BALANCE on it.

Anyone to confirm? aj485?

xraymd
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Thanks again for your help guys, I had never heard about only using 10%, I'll definitely keep that in mind. My purpose for the credit score is eventually getting a house. I'm at college on full scholarship and I have about $30,000 in savings and stocks. My car is paid off and rent is not much of an issue because it is pretty low (I live with 3 other guys). So my best bet is just to make occasional charges on both cards and pay them off? I just want to be able to buy a new car/house and not have to pay ridiculous interest rates.
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This might be a stupid question, but is there a program that can keep me up to date on how much balance I have on each card and when the payments are due?

This may be as simple as registering your cards on the card issuer's website and setting up e-mail alerts. Alerts can get to be pretty fancy depending on the card issuer. You could get an e-mail when your bill is due, if you are using x% of your limit, when your payment posts, etc. Again, it depends on how sophisticated the issuer's site is, but this is becoming more commonly available now.

As another poster mentioned, you could buy Quicken or Money or something similar, but I would try this route first. Another option is to see if your bank has anything like this that you could use. For example, Bank of America has a portfolio service that is free for account holders. It allows you to track all your account balances (credit or otherwise),due dates, minimum payments, net worth, etc.

My point being, there may be some free (and very useable) options out there for you, so check those out before you pay for software that might be a bit more than you need.
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So my best bet is just to make occasional charges on both cards and pay them off? I just want to be able to buy a new car/house and not have to pay ridiculous interest rates.

Greetings, DrBrandonRye, you are already doing very well and that's a wonderful place to be at age 20 when compounding interest works in your favor with every dollar you save. Becoming mindful of your spending habits and of your money management is going to go the very longest way towards securing you the best rates on your purchases.

To this end, let me bend your mind a little. Why not think about planning in advance and saving for your purchases so that the MONEY IS THERE before you ever even buy. You could then use your credit card to purchase (especially a cashback card that gives you back some percentage of what you spend, effectively acting as a discount to your expenditures) - and then pay it off IN FULL when the statement cycles. No carried over balance to pay interest on (that is compounding working in the creditor's favor, NOT YOURS). So your cards are zeroed out cycle to cycle (roughly month to month) and your credit utilization percentage stays nice and low compared to your credit limits. You EARN money on your planned purchases this way rather than pay extra money for them. A sweet deal for you!

I am allergic to paying interest on anything I buy and am willing to be patient enough to plan and save before I buy - but then I am also willing to be savvy and to take advantage of opportunities that the smart use of credit provides me. Keep reading here about how credit cards work. If you currently have balances, why, PAY THEM OFF IN FULL as swiftly as you are able and don't allow yourself to do that again. Then you are in the driver's seat and your good credit score will improve with time and ongoing excellent credit behavior and your interest rates will reflect that when it comes to large purchases like a car or a home. I have had credit cards for north of 30 years now and was taught early by my Dad to make credit work to my benefit, which truly does mean not to succumb to instant gratification but to think, plan and act to follow the rules to have the benefits come my way, not the creditor's way. Read posts by aj485 on the rules of credit and read posts by 2gifts on how she has been able to harness credit as have I (you could read posts by me, too, though I am rather less active recently because I have stepped away from the use of credit cards) for the betterment of our economic foundations. There really is a narrow safe path to navigate through credit use that if you stay on it and do not stray from it, will result in your goals being met, and exceeded. So become allergic to paying interest yourself, and be dead-certain to pay well on time and in full. This will in and of itself plump up your credit profile and make you look like a good risk when it comes time for important credit-based transactions. Payment can be made online from your bank account to nearly any creditor, so that is another important way to be sure your payment is timely received (as opposed to sending by snail mail - forget the stamp and the envelope and instead pay at the creditor's site for best response time).

Since planning is such an integral component of securing a strong financial foundation, let me also ask you what you are doing about yearly Roth contributions. Nothing, you say? (I am just assuming here.) Well, the moment you start to have earned income, it is immediately time to contribute to a Roth IRA. Remember the benefits of compound interest working strongest for you the youngest you start? There you are! I say Roth (and have some good arguments for doing so) but others may say Traditional - I won't go there apart from saying that this needs to be your mission in 2008 as much as is learning about how credit works. You will thank yourself a thousand times over for heeding this advice and you can learn about IRAs right here on the Fool as well. I will leave it to others to get you pointed in the right direction (there is a board for everything here but that is not a board whose title I know by heart). And even though the annual Roth contribution limit is $5000, you are still going to benefit from ANY dollars you put into your Roth, even if less than the ceiling. Your aim is not only NEVER to pay interest on your credit card transactions, it would best be to figure out how to fully fund your Roth year by year by year to the extent that your income will permit. You get exactly 15 months to make your contribution for the year in question and then that opportunity says sayonara, so get cracking so that by tax day 2009 (if not sooner), you are ready to make your 2008 Roth contribution to the fullest extent you are allowed. I think this is every bit as important as the courses you are taking in school and another place to look could be at the IRS site itself, in the appropriate Publication:

www.irs.gov

If I am telling you something that you are already aware of and doing, wonderful. If I am speaking Greek to you, then this is the next door that needs to open on your way to becoming 21!

Last, consider taking one or both of the following books out of the library: "The Richest Man in Babylon" and "The Wealthy Barber" - these are easy to read books on the initial stages of financial management that have excellent strategies to consider, and you are definitely at the point where they can do you the most good, because you have youth and time on your side.

xraymd
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Remember the benefits of compound interest working strongest for you the youngest you start?

the following examples show the positive power of compounding.

+ + + + + + +

(1)
Time frame: 50 years; yield 8%

years 1 - 10: $1000 per year; no contribution added for years 11 - 50 ==> end result $391K
(total contributions $10K)
years 1 - 10, no contributions; years 11 - 50: $1000 per year ==> end result $306K
(total contributions ($40K)

That particular example came from the 1991 edition of Jane Bryant
Quinn's "Making the Most of Your Money," p. 159, but I just found another one from something called "The Importance of Starting Early":

(2)
all three cases -- $1000 per year, every year, earning 7%

age 25 to age 65: 40 years, $40K investment ==> $214K
age 35 to age 65: 30 years, $30K investment ==> $102K
age 45 to age 65: 20 years, $20K investment ==> $ 44K

+ + + + + + +

Here's another pair of examples:

Both of the following are for Traditional IRAs with an 8% annual return
with ending time frame of 65 years of age.

(3)
Investing $50 per month starting at age 25 has a final accumulation of $168,800.
($50 x 12 = $600 per year; 40 years x $600 = total cash outlay of $24,000)
Investing $100 per month starting at age 35 has a final accumulation of $147,800.
($100 x 12 = $1200 per year; 30 years x $1200 = total cash outlay of $36,000)

(4)
In this example, there is an annual contribution of $4000.

Starting at age 25, the final accumulation is $1.21 million.
($4000 x 40 years = total cash outlay of $160,000)
Starting at age 35, the final accumulation is $532,800.
($4000 x 30 years = total cash outlay of $120,000)
Starting at age 45, the final accumulation is $217,800.
($4000 x 20 years = total cash outlay of $80,000)

+ + + + +

~~ Alison
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Thanks so much for all of your help guys! You've all been very helpful and helped me out a lot!
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