Financial Friday: Think twice before you close that credit card
HUNTSVILLE, Ala. (WAFF) - Paying off credit card debt is a great move to strengthen your financial footing. However, once you pay off that credit card, what should you do? Should you close that account or just put the card away?
We spoke with a financial expert, Patricia Lloyd at Redstone Federal Credit Union she says “NO” don’t cancel the card. Here are some of the reasons why it’s not smart to cancel that credit card.
- Most credit experts agree that you should wait before closing that credit card account. The reason is credit utilization. The credit utilization ratio is the amount you owe as a percentage of your total available credit.
- FICO scores, which most lenders use, are calculated based on five factors and your credit utilization ratio is one of those. Experts suggest using no more than 30% of your limits, and less is better. Charging too much on your cards, or maxing them out, is usually associated with being a higher credit risk and will eventually lower your credit score.
- Instead, put the card away or cut it up. Then, to protect it, go to your online banking account and use card controls to lock the account.
For more ways to save be sure to tune in at noon every Friday for WAFF 48′s “Financial Friday” segment.
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