Category: Credit Cards

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The Best Time to Make a Credit Card Payment


When do you pay off your credit card bill? Some people pay their full balances every month by the due date listed on their credit card statements. Others carry a balance from month to month but make the minimum required payment at some point before the deadline. So when’s the best time to make a credit card payment? Before we discuss that, let’s review why you should at least pay your bill by the deadline.

Why It’s Important to Pay Bills On Time

Most lenders use the FICO scoring model to assess credit scores. Under that scoring model, 35% of your credit score depends on your payment history. So if you have a record of making late credit card payments, that can ding your score.

There’s another reason why you should make paying off your credit cards a priority. A credit card is a type of revolving credit account. Unlike installment credit accounts – like mortgages and student loans – revolving credit accounts allow you to borrow money whenever you need it up to a certain threshold (your credit line). There’s no fixed monthly payment and you can carry a balance from month to month by not paying your bill in full.

When it comes to your FICO credit score, revolving debt typically carries more weight than installment debt. So while making any kind of loan payment after its due date can hurt your credit score, late credit card payments can do more damage to your credit.

The amount of debt you owe accounts for 30% of your FICO credit score. An important part of that variable is the credit utilization ratio (the amount of credit you’ve used compared to your credit line) associated with your revolving credit accounts. That means your credit score could take a serious dive if you miss your credit card payment deadlines and you’ve used a significant portion of your available credit line.

The Case for Making Early Credit Card Payments

While it’s a good idea to pay your credit card bill when it’s due, making an early credit card payment can work in your favor. To understand why, you’ll need to know how your billing cycle works.


Credit card billing cycles often last for 29 to 31 days. The last day of your billing cycle is called your statement closing date. Whatever credit card balance you have on this day is usually the balance that your credit card issuer reports to the credit bureaus. Your closing date isn’t the same as your payment due date. After all, your credit card payment technically isn’t due until the end of a 21- to 25-day period known as the grace period.

By making a credit card payment before the closing date, you can make it seem as though you’ve racked up less credit card debt. For instance, let’s say you have a credit card with a $3,000 credit limit. If you spend $2,500 but pay off $1,700 before the closing date, the credit reporting bureaus will think you’ve only spent $800.

Why is that a good thing? Based on our example, the credit reporting bureaus would think that your credit utilization ratio is 26.7%. Lowering your credit utilization ratio can improve your credit score. If you want a better FICO score, it’s best to keep this percentage below 30%.

When You Shold Make a Credit Card Payment

You’ll be in good shape if you can pay off your credit card by the due date, especially if you pay your entire balance. Paying at least part of your bill before the closing date could be even better if you want a good credit score.

But the best time to make a credit card payment may be whenever your credit utilization ratio exceeds 30%. By tracking your credit utilization ratio and keeping it as low as possible, you can protect your credit score. And you won’t have to worry about remembering the date when your credit information will be reported.

To calculate the credit utilization ratio for an individual credit card, you can take your credit card balance and divide that number by your credit line. Then multiply that number by 100.

Credit reporting bureaus also consider your overall credit utilization ratio. If you have multiple credit accounts, that’s equal to the sum of all of your credit card balances divided by your total credit limit.

Bottom Line

Trying to figure out the best time to pay off your credit card? To avoid paying interest and late fees, you’ll need to pay your bill by the due date. But if you want to improve your credit score, the best time to make a payment is probably before your statement closing date, whenever your debt-to-credit ratio begins to climb too high.


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Three-quarters of Americans are stressed about this…

Almost three-quarters of Americans are experiencing financial stress at least some of the time, and nearly a quarter of us are experiencing extreme financial stress, according to a study released today by the American Psychological Association.

Overall stress levels have been declining since the association published its first annual stress survey in 2007. But underneath that larger trend, disturbing patterns are emerging.

Widening Gap

For one thing, there is a widening gap in stress levels between low-income and higher-income Americans.

People with incomes under $50,000 and with incomes over $50,000 reported comparable overall stress levels in 2007, at 6.2 on a 10- point scale (where 10 represents extreme stress.) While overall stress levels were lower in 2014, the wealthier group reported overall stress levels of 4.7 and the lower-income group reported a 5.2 stress level, the widest that gap has been.

“Until very recently, with things looking better, wages have been stagnant. When your cost of living continues to increase and your wages don’t keep up, the impact of that is disproportionate,” said Katherine Nordal, executive director for professional practice at the American Psychological Association. “Those of us who are fortunate enough to be in the $50,000-plus category, we have more options or discretion about how we spend money, for the most part.”

Money stress and health

Higher financial stress levels have worrisome health implications, according to the report, which is titled “Paying With Our Health.” Lower-income Americans reporting financial stress of 8 or more on a 10-point scale are distinctly more likely than lower-income Americans with low financial stress to spend excessive time watching TV or surfing the Internet, and they are more than twice as likely to overeat, drink or smoke.

Americans with high levels of financial stress may be harming their health in other ways too. Some 12 percent of respondents said they had skipped going to the doctor at some point in the past year because of financial pressures, and 9 percent had considered doing so. Almost a third of the respondents said their financial situation prevented them from living a healthy lifestyle.

Those behaviors will have a major impact on the long-term health of those stressed-out Americans, Nordal said. “About 40 percent of health-care outcomes are driven by individual behaviors,” she said, much more than the 10 percent attributable to the quality of medical care.


Financial Stress Information

Support cuts stress

The American Psychological Association report follows a poll published last July that also pointed to the toll that financial stress takes. In that poll, by the Harvard School of Public Health, the Robert Wood Johnson Foundation and NPR, 53 percent of respondents who experienced a great deal of stress in the last month said financial problems were a factor.

There is a glimmer of positive news in the report. “For those Americans who feel the burden of stress about money the most—parents, younger generations, lower-income households and women—it seems that emotional support is even harder to come by,” the survey found.

But respondents who reported having an emotional support system reported markedly lower stress levels, at 4.8 on a 10-point scale, than people without support, who reported stress levels averaging 6.2. (The American Psychological Association provides tips for managing financial stress.)

Look to your left. Look to your right. One of you will have financial stress this year, so lend a hand.

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Five lessons I’ve learned from having my credit card hacked

One morning when I was in a hurry to get to work, everything went wrong in an instant: an SMS message alerted me to an $80 charge to my credit card for a purchase that I never made.

What did I do next? I blocked my card, filed a claim at the bank, and got a new card issued. I must say that in the end, all the troubles were resolved and I got my money returned to me. Mostly, thanks to my prompt reaction. However, how it all ended is not the purpose of the story — it is about the lessons that I’ve learned.

Lesson #1. Promptness is what matters

It applies to any bank in the world: the faster you react and prove that there was a hack, the better the chance that you will have to get your money back. In order to succeed, you need to be notified of unsolicited transactions ASAP, ideally via SMS notifications.

Daily e-mails on an account status are also OK. Scrupulous tracking of monthly bank reports is a last-resort measure if you’ve got no better options. I had SMS notifications enabled, so it took me just 5 minutes to block the card and claim the unsolicited transaction in question that same day.

Lesson #2. All types of insurance will do

Each extra level of protection makes it harder for scammers to reach their goal, and ultimately minimizes your losses. For this reason, you should enable 3D-Secure (MasterCard SecureCode, Verified by Visa) for all online payments and two-step authentication in your online banking tool, choose terminals with chip and PIN support and say no to those requiring only a swipe and signature.


Do online payments only on secure Wi-Fi networks and install a robust antivirus solution on your PC. Additionally, insurance would also help: such products can be activated together with any banking card.

I approached all of these measures together. So maybe there had been attempts by scammers to steal money from my card before, but I never noticed because these attempts had been fruitless.

Lesson #3. Precaution is not a cure-all

Unfortunately, scammers’ wellbeing directly correlates to their ability to bypass all security measures that may be in place. That’s why all of the measures I described above cannot fully protect you. The most effective way to say goodbye to your hard-earned money is by withdrawing cash in ATMs with scamming software installed by culprits, or by executing online payments on a compromised machine. In the first case, the criminals would duplicate your card credentials to withdraw cash. In the second case they will spend your funds online.

I have been very cautious with my cards, so I likely fell victim to a more sophisticated approach. As we have learned this year, paying with your credit card at large retailers can be potentially dangerous, if a special Trojan has infected their systems. This specifically applies to American retailers because often they use outdated POS terminals. My card used to be frequently used in the US and there it is likely to have fallen victim to such a scam.

There is one more option that cannot be ignored — a leak of payment data from one of the online merchants. I have 3D-Secure enabled on my card, but a criminal could have somehow managed to track down the shop, which used an outdated processing system with no support of 3D-Secure, and therefore charged my card.

Lesson #4. Using credit card scams is an organized crime precedent

I came across the answer in a curious way. After having successfully blocked my credit card, I had no reason to worry for about a week. But then I received a text message alerting me to a new attempt to charge my card in some other American online marketplace, and another some days after that.  In a week’s time there was another, notifying me of an attempt to execute an offline payment at a store in Mexico.

All attempts were, ultimately, unsuccessful due to the fact that the card was blocked. That meant that someone who stole my card credentials resold it to various people (presumably in the form of a database with thousands of other card credentials), and each of them tried to use it again and again.

Lesson #5. Always have a plan B

And plans C, D and E also would be useful. In my case, the hypothetical loss was not that significant, and no serious harm would have been inflicted even if I were unable to regain my money.

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7 Easy Ways To Improve Your Credit Score

If you need to boost your credit score, it won’t happen overnight.

A credit score isn’t like a race car, where you can rev the engine and almost instantly feel the result.

Credit scores are more like your driving record: They take into account years of past behavior you can find on your credit report, not just your present actions.

1. Watch those credit card balances

One major factor in your credit score is how much revolving credit you have versus how much you’re actually using. The smaller that percentage is, the better it is for your credit rating.

The optimum: 30 percent or lower.

To boost your score, “pay down your balances, and keep those balances low,” says Pamela Banks, senior policy counsel for Consumers Union.

If you have multiple credit card balances, consolidating them with a personal loan could help your score.

What you might not know: Even if you pay balances in full every month, you still could have a higher utilization ratio than you’d expect. That’s because some issuers use the balance on your statement as the one reported to the bureau. Even if you’re paying balances in full every month, your credit score will still weigh your monthly balances.

One strategy: See if the credit card issuer will accept multiple payments throughout the month.

2. Eliminate credit card balances

“A good way to improve your credit score is to eliminate nuisance balances,” says John Ulzheimer, a nationally recognized credit expert formerly of FICO and Equifax. Those are the small balances you have on a number of credit cards.

The reason this strategy can boost your score: One of the items your score considers is just how many of your cards have balances, says Ulzheimer. He says that’s why charging $50 on one card and $30 on another instead of using the same card (preferably one with a good interest rate), can hurt your credit score.

The solution to improve your credit score is to gather up all those credit cards on which you have small balances and pay them off, Ulzheimer says. Then select one or two go-to cards that you can use for everything.

“That way, you’re not polluting your credit report with a lot of balances,” he says.

If you can’t afford to pay these small balances off at once, moving them to a balance transfer credit card might help.

3. Leave old debt on your report

Some people erroneously believe that old debt on their credit report is bad, says Ulzheimer.

The minute they get their home or car paid off, they’re on the phone trying to get it removed from their credit report, he says.

Negative items are bad for your credit score, and most of them will disappear from your report after seven years. However, “arguing to get old accounts off your credit report just because they’re paid is a bad idea,” he says.

Good debt — debt that you’ve handled well and paid as agreed — is good for your credit. The longer your history of good debt is, the better it is for your score.

One of the ways to improve your credit score: Leave old debt and good accounts on as long as possible, says Ulzheimer. This is also a good reason not to close old accounts where you’ve had a solid repayment record.

Trying to get rid of old good debt “is like making straight A’s in high school and trying to expunge the record 20 years later,” Ulzheimer says. “You never want that stuff to come off your history.”

4. Use your calendar

If you’re shopping for a home, car or student loan, it pays to do your rate shopping within a short time period.

Every time you apply for credit, it can cause a small dip in your credit score that lasts a year. That’s because if someone is making multiple applications for credit, it usually means he or she wants to use more credit.

However, with three kinds of loans — mortgage, auto and more recently, student loans — scoring formulas allow for the fact that you’ll make multiple applications but take out only one loan.

The FICO score, a credit score commonly used by lenders, ignores any such inquiries made in the 30 days prior to scoring. If it finds some that are older than 30 days, it will count those made within a typical shopping period as just one inquiry.

The length of that shopping period depends on the credit score used.

If lenders are using the newest forms of scoring software, then you have 45 days, says Ulzheimer. With older forms, you need to keep it to 14 days.

Older forms of the software won’t count multiple student loan inquiries as one, no matter how close together you make applications, he says.

“The takeaway is, don’t dillydally,” Ulzheimer says.

5. Pay bills on time

If you’re planning a major purchase (like a home or a car), you might be scrambling to assemble one big chunk of cash.

While you’re juggling bills, you don’t want to start paying bills late. Even if you’re sitting on a pile of savings, a drop in your score could scuttle that dream deal.

One of the biggest ingredients in a good credit score is simply month after month of plain-vanilla, on-time payments.

“Credit scores are determined by what’s in your credit report,” says Linda Sherry, director of national priorities for Consumer Action. If you’re bad about paying your bills — or paying them on time — it damages your credit and hurts your credit score, she says.

That can even extend to items that aren’t normally associated with credit reporting, such as library books, she says. That’s because even if the original “creditor,” such as the library, doesn’t report to the bureaus, they may eventually call in a collections agency for an unpaid bill. That agency could very well list the item on your credit report.

Putting cash into a savings account for a major purchase is smart. Just don’t slight the regular bills to do it.

6. Don’t hint at risk

Sometimes, one of the best ways to improve your credit score is to not do something that could sink it.

Two of the biggies are missing payments and suddenly paying less (or charging more) than you normally do, says Dave Jones, retired president of the Association of Independent Consumer Credit Counseling Agencies.

Other changes that could scare your card issuer (but not necessarily hurt your credit score): taking cash advances or even using your cards at businesses that could indicate current or future money stress, such as a pawnshop or a divorce attorney, he says.

“You just don’t want to do anything that would indicate risk,” says Jones.

7. Don’t obsess

You should be laser-focused on your credit score when you know you’ll soon need credit. In the interim, pay your bills and use credit responsibly. Your score will reflect these smart spending behaviors.

Are you getting ready to make a big purchase, such as a home or car? At least a few months in advance, have a look at your credit score, Consumer Action’s Sherry says.

While the score that you get through your bank or a service may not be the exact same one your lender uses, it will grade you on many of the same criteria and give you a good indication of how well you’re managing your credit, she says. It will provide you with specific ways to improve your credit score — in the form of several codes or factors that kept your score from being higher.

If you are denied credit (or don’t qualify for the lender’s best rate), the lender has to show you the credit score it used, thanks to the Dodd-Frank Wall Street Reform and Consumer Protection Act.

Another smart move is to regularly check your credit reports, says Sherry.

You’re entitled to one of each of your three credit bureau reports (Equifax, Experian and TransUnion) for free every 12 months through AnnualCreditReport.com.

It’s smart to stagger them, Sherry says. Send for one every four months, and you can monitor your credit for free.

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The Complete Guide To Paying Off Credit Card Debt With A Balance Transfer

The Complete Guide To Paying Off Credit Card Debt With A Balance Transfer The Complete Guide To Paying Off Credit Card Debt With A Balance Transfer

Fighting fire with fire.

More than once, I’ve heard that phrase used to describe completing a balance transfer for the purpose of paying off credit card debt, and the people that said it were right.

Credit cards are a dangerous thing when used incorrectly.  For most people, credit cards are easy to get, easy to use, and tough to pay off. The high interest rates (usually 15% – 23%) leaves you drowning in interest, barely touching the principal, paying thousands of dollars in interest each year.

But, if you’ve gotten yourself into some credit card debt, and are committed to paying it off, you have options.  After all, paying off a credit card while still paying exorbitant interest rates is like trying to swim upstream, against the current.  You can make progress, but it’s unbelievably hard.

Here are the most common ways to refinance credit card debt:

  • A personal loan
  • With home equity
  • A Balance Transfer

Today, we’re going to fight fire with fire and talk about balance transfers: who they’re right for, what you need to do it successfully, and what to watch out for.  Done correctly, regardless of you feelings about credit cards, you can save yourself a lot of time and frustrating by paying off debt after a balance transfer, rather than going the more traditional routes of a home equity loan or a personal loan.

How Much Is Your Credit Card Debt Costing You?

Credit card debt carries some of the highest interest rates of any type of debt, and is the undisputed “worst” type of debt to have.  The average American family has more than $15,000 in credit card debt, and at a low estimated interest rate of 15%, a minimum payment of $400 and paying $400 extra each month towards the debt, that family would pay $5,367 in interest over the 51 months it would take to pay it off!

In order to understand just how advantageous a balance transfer can be for you, you need to first understand just how much that debt will cost you in interest, and how long it will take to pay it off.

You might be surprised at just how much interest you’ll be paying on your credit cards alone + how long it will take you to get out from underneath that credit card debt!

What Is A Balance Transfer?

A balance transfer is when you take the balance from one credit card (usually bearing a high interest rate) and transfer it to a newly opened credit card in exchange for a 0% interest rate for 12-15 months.  This cuts down on the interest payments by hundreds or even thousands of dollars, and give yourself a set time frame to pay off the debt within.

Why Is A Balance Transfer a Good Option?

Utilizing a balance transfer over a route with a traditional bank is advantageous for several reasons:

  • You don’t have to fill out tons of paperwork
  • Very little income information required
  • Instant, or very quick decision
  • Huge interest rate deduction

As long as you have good or excellent credit, you can apply for and be approved for a new credit card within a few minutes, all online, without ever having to set foot in a bank.  Credit card companies are required to be VERY transparent about the terms of the credit card, not only the interest rate, but any an all fees, the balance transfer terms, as well as any associated fees.

You can also get an interest rate advantage by completing a balance transfer, with most balance transfer interest rates hovering around 3%.  Some may be larger, and you can even find some that are 0%, but 3% is pretty common.  Let’s use $15,000 of credit card debt as the example and assume that you’ll be approved for the balance transfer credit card with a credit limit large enough to accommodate the $15,000 of debt.

In this case, you would pay a $450 fee for transferring your balance, well below the $5,367 in interest you were looking at.

If you choose the correct card, you can pay as little as 0% interest for 15 month, putting your payment right at $1,030 a month.

This is larger than the $400 minimum payment + $400 extra you were paying each month, but chances are you can find an extra $230 each  month to put towards the payment!  If you can’t, you should seriously look for ways to cut your budget for a few months, or put a few hours each week into making extra money.  The other alternative is to transfer your $15,000 balance, continue to p pay $800 a month towards it, and then transfer the remaining $3,450 to another balance transfer credit card for a few months to continue paying off the debt without racking up interest!

The ease of application, ease of use, and lower interest make transferring a balance to pay off a credit card faster a really good option if you have systems in place to keep from falling into credit card debt again (I’ll get into those in a minute).

The Best Balance Transfer Credit Cards

There are some truly great offers out there right now to help you pay off credit card debt – even though that’s not what they’re designed for.  These 0% for 15 month offers are supposed to entice you to open up a card and rack up large amount of debt on it so that the credit card company can make a killing charging you hundreds in interest each month.

But you can outsmart the system using these great balance transfer credit cards:

Barclaycard Arrival World MasterCard: 0% APR for 12 months on each balance transfer made within 45 days of account opening

Chase Slate: 0% APR for 15 months on balance transfers made within 60 days of account opening.  $0 annual fee.

Citi Simplicity: 0% APR for 21 months on balance transfers made within 60 days of account opening.  $0 annual fee, but a 3% balance transfer fee applies

Discover It Card: 0% APR on balance transfers for 18 months, $0 annual fee, and 3% balance transfer fee.

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Here’s What I Recommend for a First Credit Card

Here’s What I Recommend for a First Credit Card Here’s What I Recommend for a First Credit Card

There are hundreds of credit card options out there, so how does someone pick their first credit card?

“What should I get for my first credit card?” is a question I’ve heard from many people. What I’ve learned over the past few years is that most people are not looking for a bunch of options. They just want to know which card I recommend – and why.

Most people realize that even if they don’t like their first credit card they can always sign up for another one. But they obviously prefer to sign up for a solid first credit card that they will continue to use for years to come.

I’ve actually been meaning to write this blog post for over a year now because my answer has remained consistent for a long time now.

The Best First Credit Card

The card I recommend for a first credit card is the Discover it® Card.

Coincidentally (or perhaps not), Discover was my first credit card. I opened my Discover card about a decade ago and have been using it ever since.

Here’s some reasons I think the Discover It credit card is the ideal first credit card:

1) No Annual Fee

When it comes to a first credit card, having no annual fee is the most important feature I look for. If a card has an annual fee, it’s not a good first credit card.

Your credit score is, in part, based on your credit history. If you open a card with no annual fee you can keep it open forever even if you decide to stop using it. If you open a card with an annual fee you will likely end up closing it, perhaps even within a year of opening it.

The Discover it® Card does not have an annual fee and this is by far the most important feature of the card.

2) Solid Rewards

While it’s true that there is no huge sign-up bonus for the Discover it card that will allow you to travel hack your way to Europe, it does have some solid rewards that I think you should take full advantage of.

These include:

  • 1% Cash Back The Discover it® Card has always offered 1% cash back, regardless of where the purchase was made, what was purchased, etc. No matter what you will always get 1% cash back.
  • Dollar for Dollar Cash Back Rewards the First Year While the Discover it® Card does not offer the lucrative sign-up promos that some of the top travel rewards credit cards offer, they do offer a special incentive to those signing up for the first time.The incentive is this: for each dollar in cash back rewards you get throughout your first year, they will give you an additional dollar. So if you racked up $150 in cash back rewards, you’d get an additional $150. Essentially you get 2% cash back your first year.
  • 5% Revolving Cash Back Each quarter of the year Discover offers new 5% cash back offerings. For example, you can earn 5% cash back bonus on up to $1,500 in purchases made at Home Improvement Stores & at Amazon.com July through September 2016. Last quarter it was a 5% cash back bonus on up to $1,500 in purchases at restaurants and movies.If you take advantage of these revolving 5% offerings you can rack up cash back bonuses quick.
  • Partner Gift Cards One of my favorite benefits of the Discover it® Card is the partner gift card program. My wife and I have used this for years and it’s always nice to get a “free” gift card.It’s a really simple program. If you use your cash back rewards to redeem a gift card, you will get the gift card at a discounted rate. For example my two personal favorite gift cards to get are $50 Starbucks and Chipotle gift cards. You can get either of these for just $45 of cash back rewards, another free $5 on top of the $45 you already accumulated through cash back rewards.There are currently 140 participating stores/brands and some have even better deals than what I described for Chipotle and Starbucks. For example, a $50 Gap gift card can be had for just $40 in cash back rewards. A $60 1-800 Flowers gift card can be had for just $40 in cash back rewards, and so on.

3) Good Dashboard & Customer Support

The design of the online dashboard and customer support are definitely less important features than having no annual fee and having a good rewards program, but I still think it’s worth noting.

The online dashboard that Discover has is my favorite of any credit card I’ve used – and I’ve signed up for a lot of credit cards the past few years. It’s clean, easy to navigate, and I’ve never had problems with it. Other dashboards can be clunky or overly simplistic to the point where it’s difficult to navigate.

I thankfully haven’t had to interact with customer support that often with Discover, but I did talk to them prior to going on a cruise so that they were aware of the countries I’d be visiting and potentially using my Discover card at. They were kind, courteous, and overall I just got the feeling that if anything went wrong with my Discover card they would quickly resolve the issue (with a smile on their face!).

Tips for People Getting their First Credit Card

While I could easily write a whole post (or series of posts) on tips for people getting their first credit card, I figured it would be worthwhile to briefly touch on the topic in this post.

Here’s 3 tips for people getting their first credit card:

  • Treat your credit card like cash The fact that you are getting your first credit card means that you haven’t gotten into credit card debt. You have an opportunity to never get into credit card debt, but it requires you to immediately get in the mindset of treating your card like cash.If you don’t have the money, don’t charge it, and make sure you pay off your credit card in full each month.
  • Only use 1/3 of your available credit at any one time Using only 1/3 of your available credit may not seem like common sense, but your credit score is impacted by how much credit you utilize. So if you were approved for $1,000 in credit you should keep the balance on your card below $333 at any one time.There is no penalty for making multiple payments towards your credit card throughout the month, so consider taking that approach if you are worried you will go above the 1/3 “utilization” threshold.
  • Request a credit increase after 6-12 months Along the same lines of only using 1/3 of your available credit, you will also want to consider requesting a credit increase after 6-12 months. If you have been consistently paying off your card you are likely in a good position to have your request approved.How do you request a credit increase? With Discover it’s an option within the online dashboard. If you aren’t approved, don’t sweat it. You can wait another six months and submit the request again.

To summarize, I recommend the Discover it® Card as a first credit card. It has no annual fee, solid rewards, and a good online dashboard and customer support.

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How to Close Credit Cards Without Damaging Your Credit Score

How to Close Credit Cards Without Damaging Your Credit Score How to Close Credit Cards Without Damaging Your Credit Score

Paying on your credit card accounts and maintaining good credit often results in a credit limit increase and additional credit card offers. There is nothing wrong with having credit card accounts, as long as you use these accounts responsibly. What’s more, bad credit cards have helped many people re-establish their credit and build strong scores – but what if you’re ready to decrease your number of credit cards?

Closing credit card accounts that you no longer use may seem wise, especially if you’re looking to simplify your finances. However, there is a wrong and a right way to close down your accounts. Credit scores are based on numerous factors, including the length of your credit history. The longer you’ve had a credit card (or any type of credit) in your name, the higher your personal FICO credit score. {Also read Why Cancelling a Credit Card Hurts Your Personal Credit Rating}

Whether you have unsecured credit cards or bad credit cards, closing your accounts can possibly reduce your credit score. This is because canceling the account can reduce your overall credit history. The actual damage varies, but your score can drop 15 or 20 points after closing an older account. This single move can damage your prime rating and result in a higher interest rates on loans.

Cancel the Youngest Card to Reduce Credit Damage

Closing or canceling an older card will cause some credit damage, however, you can minimize the damage by keeping your oldest account open and closing your newer accounts. Closing the oldest account can greatly reduce your credit history, but if you were to keep this account open and cancel another account, the length of your credit history remains the same. Thus, helping keep your credit score intact. Read your statements or call your credit card company for information regarding the date that you opened your account.

Lowest Credit Limit

It also helps to close the account with the lowest credit limit. The wider the gap between your balance and your credit limit, the better. Accounts with low limits ($300 to $500) increase the risks of having a high utilization ratio, which can damage your credit score. However, if you have a credit card with a higher $1,000 credit limit and you maintain a balance of $200, your utilization ratio is less than 30 percent, which helps improve your score.

Close Accounts Slowly

Don’t close multiple accounts within the same day, week, or even month. Take your time. Close one account, wait six months, and then close another account. Canceling several accounts within a short period can cause a huge decrease in your credit score.