This simple step can save your credit rating

Ken and Daria Dolan, America's First Family of Personal Finance, answer your money questions every Friday.

Dear Dolans,

I've followed your advice and actually paid off the balance on one of my credit cards. I'm very excited! Should I cancel that account now?


Great question, Maya. This is a situation we hear about a lot.

First, let us congratulate you. You've been smart with your money, worked hard and accomplished something significant by paying off one of your credit cards. Well done!

We understand your desire to cancel that account, but that may not be the right thing to do.

There are two very important questions to consider here:

  • Is it in your best interest to cancel the card? (It's not always.)
  • If you do cancel the account, are you doing it the right way?

The answer to the first question depends on how often you use that card and how long you've had it. If you've had it for a long time and have a good history of making your payments on time, don't cancel it! It's good for your credit history. Canceling that card could actually work against you.

Instead, we recommend that you either use it and pay off the balance each month or cut it up and throw it away if you don't want to go back into debt. Either way, be sure to leave the account open.

On the other hand, if this is one of those cards that's relatively new to you or that you don't use very often, you're probably better off canceling it IF you have too many open lines of credit, which isn't good for your rating either...and could even result in a higher interest rate!

Which brings us to the second key point: Make sure you cancel the account the right way!

Simply cutting up the card is NOT the right way to get rid of it. You need to show the credit rating agencies that you are canceling the card and not having it canceled by the credit card company because you're a deadbeat.

We can't emphasize this enough!

All you need to do is send a letter with the pertinent information on it to your credit card company. We've made it easy for you and have prepared a sample credit card cancellation letter for you. Just fill in the blanks and you're all set!

Ken and Daria Dolan offer much more advice on everything from debt management to saving money to retiring in style at

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