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Unread 08-22-2008, 01:03 PM
 
Location: York, SC
335 posts, read 882,145 times
Reputation: 133
Question What's better for your credit score?

To pay off credit cards and close the accounts or to just pay them off and leave the accounts open?

We are going to be coming into a little money and want to know the best thing for us to do with it to help credit.

Or is it better to pay off a car loan?

Thanks in advance for all replay!
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Unread 08-22-2008, 01:07 PM
Status: "Achoooo!!!!" (set 10 days ago)
 
Location: Jollyville
2,592 posts, read 4,913,295 times
Reputation: 1866
Pay the accounts and leave them open. The age of the account, as long as it's in good standing, actually improves your score. Someone posted about this awhile back. He gave a great explanation -I'll go see if I can find that thread.
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Unread 08-22-2008, 01:10 PM
Status: "Achoooo!!!!" (set 10 days ago)
 
Location: Jollyville
2,592 posts, read 4,913,295 times
Reputation: 1866
It's best to pay off whichever loan has the highest interest rate. I would think that would be the credit cards vs. the car loan.

Here's the thread I was talking about:

FICO score question: cancelling credit card
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Unread 08-22-2008, 01:42 PM
 
Location: York, SC
335 posts, read 882,145 times
Reputation: 133
Thanks for the quick response!
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Unread 08-22-2008, 01:45 PM
 
1,955 posts, read 3,024,626 times
Reputation: 1042
Don't close the accounts, as percentage of available credit used is an important part of the score. Closing accounts obviously decreases available credit, and assuming you have balances on other accounts, the percentage will increase, perhaps quite substantially.

If you pay off an account in full, a company might close it after a while due to inactivity.
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Unread 08-22-2008, 02:09 PM
 
Location: North Jersey
10,076 posts, read 13,648,438 times
Reputation: 5446
You know these cc companies and this Fico bull....If a customer has paid off a card and wants to close it there should be no drop in score...grrrrrrrrrr, that just annoys me to no end
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Unread 08-22-2008, 02:32 PM
 
2,090 posts, read 2,286,319 times
Reputation: 2818
A link that may help:

www.debtreductionlessons.com
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Unread 08-22-2008, 04:21 PM
 
Location: Ohio
9,612 posts, read 4,900,008 times
Reputation: 5529
Quote:
Originally Posted by NewToYorkSC View Post
To pay off credit cards and close the accounts or to just pay them off and leave the accounts open?
DO NOT close the accounts. Your credit score is based in part on the length of age of the accounts. If an account is 6 months old or less, then it is not seasoned and you can close that if you want without affecting your credit score, since that account is not figured into the equation anyway.

If you feel compelled to close one or two accounts, pick the ones with the lowest credit limits, or those that charge annual fees.

Before closing one with an annual fee, call customer service and ask to speak to the retention department. Ask to waive the annual fee, if they say no, then politely tell them you have no use for their card and you would like to no the process for canceling it. They'll probably waive the annual fee. If not, then cancel.

The Fair Isaacs formulation requires you to maintain a balance on your cards to score the highest score, so leave at least 10% of the credit limit on the card.

If you don't have "credit score envy" or aren't obsessive-compulsive, don't worry about it.

Quote:
Originally Posted by NewToYorkSC View Post
Or is it better to pay off a car loan?
You might want to consider paying down, rather than paying off. You'd want to pay down enough so that you aren't upside down on the loan.

That would allow you to get a better trade-in value in the future, or if you suddenly had problems later, you could easily refinance to lower the payments.
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