Question: I have 3 credit cards that I have paid off. If I was to accept an offer from another credit card company that offers me better services would it affect my credit in a positive or a negative way? Should I cancel any of the cards that I have paid off or leave them opened?

Dear Reader,

Congrats on paying off your cards. That’s certainly something to celebrate! Because you have been paying off your cards on time and in full, your credit score has increased. When you have a higher score, you have access to better offers from lenders and creditors, which includes lower interest rates and reward programs. However, that doesn’t mean that you should apply for the first good offer that you see or close one of your paid-off credit cards.

Anytime you ask for new credit, even if it’s a pre-approved offer sent to you, the creditor will run your credit and generate a hard inquiry on your credit report. This hard inquiry stays on your report for 24 months and affects your score negatively for some time. According to FICO, each inquiry can lower your score 5-10 points. But the real impact will depend on your overall credit health. If you have multiple inquiries in a short period, it can be even more detrimental to your credit. Lenders can interpret this as a sign that you are overspending or can’t pay your bills. But, if you are shopping around for rates for a mortgage or auto loan, multiple inquiries count as just one if done in a certain period of time.

So, you have to be selective and compare offers from different lenders online when applying for a new card. A few new perks may not be worth the temporary decrease in your score. An alternative to getting a new credit card with more benefits is to ask your current lenders to upgrade your cards. Creditors are often willing to work with you, especially if your accounts have been in good standing. Sometimes, they can do it without pulling your credit.

Now, even if you get a new card, I don’t recommend closing any of your cards. You should consider closing your cards if you have trouble controlling your spending or are paying an annual fee on the card. But other than that, closing a credit card can do more harm than good to your credit report. Whenever you close an account, you can affect your utilization ratio, which compares your total available credit to your total credit card debts. Your credit utilization ratio is one of the factors that influence your score the most, almost as much as always paying on time. The lower your credit ratio, the better your score. If you close a credit card and have balances in your other credit cards, your utilization ratio will increase, and consequently, your score may drop. Keeping the card open with a zero balance can help you maintain a lower utilization ratio when you start using your other credit cards.

Another thing to keep in mind before you decide to close an account is that it can reduce your credit report age. To calculate your score, FICO also takes into consideration the average age of all your accounts and for how long you’ve had each account. When you close an account in good standing, it will stay on your report for seven years. After that, it will be removed from your report. And with it, all the positive history you had, including its age, which could lead to a drop in your score. The longer you’ve had credit for, the better.

Understanding how your credit card use affects your score is a wise step to effectively manage your credit and boost your score. Each credit report is unique, and each action we take affects us uniquely. Consider keeping your paid-off credit cards open and try upgrading them before getting a new one. The key to building your credit is to use your credit card responsibly. This means using less than 30% of your available credit, paying in full and on time every month, and limiting how often you get new credit. Good luck!

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