should i cut up or keep my credit cards?

I get these questions aaaaaaall, the time:

“Hey B, should I keep my credit card?”

“Tiffany, I heard that it’s bad to close a credit card, is that true?”

“Budgetnista, will closing my credit card lower my credit score?”

Well, I’m here to answer your money questions and… depends.

Here’s a step-by-step guide to help you figure out if YOU should close or keep your credit card(s).

1) List ALL of your Revolving Credit Accounts. These are accounts that allow you to continue to use them while paying them back. Some examples are: credit cards, home equity lines of credit (basically when you borrow from the mortgage money you have built into your home), retail (department store, gas) cards.

Unlike a loan, a revolving account doesn’t automatically close when the account reaches a $0 balance. It usually remains open and available for use until the lender or the consumer (you), chooses to close it.

2) Add up your credit limits. This is the amount the credit card company has said you can spend up to.

3) Add up your current balances. Your balance is what you currently have left to pay off of each card.

4) Divide your balance by your credit limit.   (example: if your balances equal up to $2,300 and your credit limits equal up to $10,000, then it $2,300/$10,000 = 0.23)

5) Multiply your answer by 100 (example .23 x 100= 23 = 23%). This number is your credit utilization rate. Credit utilization tells you how much of your available credit you use on a monthly basis. The key is to use some of your credit, but not too much. Ideally you want to be using between 20% – 30%. You get graded for how much credit you use by the credit scoring companies. About 1/3 of your credit score is your credit utilization rate. If you’re paying all of your bills on time, but your score won’t seem to improve, your credit utilization rate maybe over 30%.

6) If your current credit utilization ratio is between 20% – 30% or higher, then you SHOULD NOT decrease or close any of your credit card accounts. Doing so will make your credit card utilization rate even higher and your credit score lower. Continue to pay down your cards and try your best to stop using them until you get your utilization rate down (if it’s above 30%)

7) If your ratio is below 20%, recalculate your ratio, but do so without your newest card. Length of credit history accounts for 15% of your credit score. You don’t want to shorten your credit history and lower your score by closing an old card. So redo your math without factoring in your newbie card. What’s your credit utilization score now? If it’s still between 20% – 30%, you’re good. You can decrease or close that new card. If your utilization ration is not between 20% – 30% without your newbie card, you need to keep it.

8) Keep dropping the newest card on your list until your find how many cards you can keep and still have a credit utilization rate between 20% – 30%.

9) Keep paying off your debt

10) Do a happy-dance, you FINALLY know how to decide if a credit card should stay or go.

Choose one…. 🙂
Happy Dance Gif

Happy Dance Gif

for those of you with not-so-much rhythm…. tee hee hee, this is so me.

happy dance gif



Sidebar: You might wonder where I learned this AWESOME info. I learned all about it and ALL things credit from this awesome book: What the FICO : 12 steps to repairing your credit by Ash Cash. Get you some here:

About the Author Tiffany Aliche

Tiffany “The Budgetnista” Aliche, is an award-winning teacher of financial education, America’s favorite, personal financial educator, and author of the New York Times Bestselling book, Get Good with Money. The Budgetnista is also an Amazon #1 bestselling author of The One Week Budget and the Live Richer Challenge series and most recently, a children's book, Happy Birthday Mali More.

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  1. Thanks for this great, super easy guide Tiffany! I just have one question: which card should I focus on paying down the most, the card with the highest balance or the card with the lowest balance?

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