Keeping credit card accounts open to build credit

Cutting up a credit card can feel liberating especially if you have spent years diligently paying off the debt.

However, Nikhil Hutheesing of Consumer Reports says there are times when you might not want to cut that card out of your life completely-- if you're planning to apply for a mortgage.

"Because one of the things that bankers look for is your credit utilization ratio," said Consumer Reports Money Editor, Nikhil Hutheesing.

That is essentially the balance you owe on your credit cards compared to the amount you can actually borrow. Lenders like this number to be less than 30 percent, cancel an account and you lose its available credit.

"Your utilization ratio goes up and you're not as attractive a candidate," said Hutheesing.

You also want to keep the card if it is the only one you have because another thing lenders look for is diversity. They like to see that you have various credit types.

"Like an installment loan, a credit card, a store card and if you cancel the one credit card that you have, that's going to reduce your mix and it's not going to look as good," said Hutheesing.

You also want to keep time on your side. A longer credit history helps boost your credit score so if you are looking to close one of several cards you carry.

"You should give the ax to the one you got most recently," said Hutheesing.

In fact the only time when you might consider closing a card you never use is if there's an annual fee -- because that's just a waste of money. But as long as there's no fee, Hutheesing says there is really no harm in keeping those accounts open.

"Your best bet with a credit card is to stick it in your dresser drawer and just put it away if you're not going to use it."
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