Because I’m a credit, debt, and money nerd, I read a lot of stuff online about these topics. I especially like to read advice pieces because often I learn something, or at least I glean an idea or two to think more about. But I’m shocked by how often I come across what strikes me as poor advice. A Q&A piece I read online over the weekend is a case in point.
The questioner’s situation was:
- She had six credit cards she planned to pay off “this year.”
- She wanted to keep one card for emergencies.
- She’s paying a $6 per month fee for each account, whether used or not.
- She worries that closing the accounts after paying them off will hurt her credit score, especially pertinent because she plans to purchase a home and take out a mortgage.
The lengthy answer focused entirely on the trivia of utilization ratios and credit scores (admittedly one of my pet peeves). The “expert” actually recommended that under some scenarios, it would be best for this consumer to keep open her accounts, even after they’re paid off, and continue paying $6 per month each! Among other relevant topics, completely unmentioned in the answer was that there are a multitude of better options for credit cards than accounts with $6 per month fees.
My advice would have been:
- Great, pay off those credit card accounts asap, and good for you!
- Close the accounts you don’t need and for which you’re paying any fee at all.
- Good, no-fee credit cards are available. After you’ve closed all but the one account you want to keep, consider transferring any remaining balance to a no-fee card, and push to get a high credit limit so you’re still using only a small portion of the credit available to you.
- Read “Understanding Your FICO Credit Score” (available through the Free Downloads section of this website) and learn what you need to do to get the best possible mortgage rate when the time comes. Put off applying for a mortgage until you’ve done all you can to improve your credit rating and have your credit ducks in a row.
What would you have suggested?