Don't be so quick to close that credit card | News

With all due respect to Neil Sedaka, breaking up is not hard to do when you've paid off that credit card.

It's exhilarating to see a zero on your card statement -- and tempting to shut that bad boy down with a Dear John letter to your credit card company.

Don't write that letter just yet, said Lynn Oldshue, editor of the Birmingham-based LowCards.com (www.lowcards.com).

"Closing an old or unused card erases some of your available credit and increases your credit utilization ratio (or debt-to-credit ratio)," said Oldshue.

She said increasing that ratio may decrease your credit score.

"For example, say you have two credit cards--one with a $3,000 balance and one with no balance," she explained. "Each card has a $5,000 credit limit. Your credit utilization rate is currently 30 percent, a very attractive ratio for lenders to see.

"But if you close the account with no balance, you decrease your available credit by $5,000, so your credit utilization ratio increases to 60 percent."

Oldshue said it would be better to leave that account open and make a small transaction on it every month or two, paying that transaction off immediately.

For more of Oldshue's advice on canceling credit cards, please click here:  http://www.lowcards.com/blog/should-you-break-up-with-your-credit-card-3121/