Ask Jean Thursday: Protecting Your Credit Score
I have about $45,000 in credit card debt, should I payoff all my credit cards and cancel them at the same time? I’ve heard if you cancel the cards after paying them off it hurts your score.
-Nancy, Texas
Once you’re out of the red and have all your cards paid off, closing the accounts isn’t the best route to take.
If you close the accounts, there are a number of things that could potentially happen make for less than perfect financial circumstances. For one, you’ll be forced to use cash, checks or debit for all of your purchases. “They’ll lose access to the capital, have to live a cash or debit lifestyle, which is not as good as people make it out to be,” says Credit.com’s John Ulzheimer. Also, depending on how you cancel your cards, your credit score may take a hit, which will make it harder to obtain credit in the future for loans or other high ticket items.
If you have the ability to pay off the $45,000 in debt that you owe, my guess is that you’ve learned your lesson about how to use and how to not use credit cards. Instead of canceling your cards, keep them active and use them sparingly. “Leave the cards open, use them occasionally and pay them in full each month,” suggests Ulzheimer. This will ensure that your credit score won’t take a hit, and you can continue to build your credit. Is having the cards in your sight too much of a temptation? Cut the cards up, but still leave them open to ensure that your credit score isn’t hurt by a cancellation
