Close
Let’s suppose you bought a $600 sofa using one of those “no interest charges if paid off within 12 months” lines of credit. You pay off the balance within the 12 months so the question becomes, should you close that credit line.
If you don’t plan on using the account
In most cases, once you pay off the balance, the account will automatically close. However, to be on the safe side, you might want to make sure it has been closed. If you’re not carrying balances on any other credit cards then closing the account should not hurt your FICO score.
About that FICO score
Your FICO score is critical because it basically rules your credit life. If you have a good FICO score of 750 or higher, you should be able to get any kind of credit you would want, whether it’s one of those neat cash back credit cards or a mortgage. On the other hand, if your credit score is 550 or lower, you may have a problem getting any kind of credit – unless you’re willing to pay a higher-than-normal interest rate.
How your FICO score is calculated
It’s impossible to say exactly how your FICO score is computed because the algorithm or formula that is used to calculate it is a closely guarded secret. However, it is believed that 35% of your score is based on your payment history or how well you’ve handled credit. 30% will be based on credit card utilization, which is the ratio of your current revolving debt to your total available revolving credit or credit limit. The length of your credit history accounts for 15% of your FICO score, 10% on the types of credit you’ve used and 10% on recent inquiries about your credit. The “hard” credit inquiries are those that came because you applied for new credit and can have a negative effect on your credit score, especially if you’ve done a lot of these.
How to get your FICO score
There are a number of different ways you could get your FICO score, though none of them will be exactly free. For example, you can go to FICO’s own website, www.myfico.com where you could get your score free if you would be willing to sign up for a trial subscription to its Score Watch program. The website www.creditkarma.com offers free credit scores but yours will not be the same as your FICO score as its based on an algorithm developed jointly by the three credit bureaus. However, it should be close enough to your true FICO score for you to know your credit standing. You can also get your scores from the three credit bureaus but, again, they will not be the same as your FICO score as each has its own way of calculating your score.
Have you seen your credit report recently?
If you haven’t seen your credit report lately, you should definitely get it. There is a federal law mandating that the three credit reporting bureaus give you a free copy annually. You could contact each one of them and get their report or go to www.freeannualcreditreport.com and get all three simultaneously. It’s important to get and review your credit reports carefully to make sure that none contains errors that could be negatively affecting your credit score.
