Want a Strong Credit Score? Don't Make This Common Mistake

Mortgage lenders use borrowers' credit scores to identify responsible spenders, but the most frugal rarely have perfect scores. Click through to find out why that is and how you can get the score you deserve.

You paid off your credit card debt. You should be proud. That's not an easy task. And reducing your credit card debt will boost your FICO credit score.

But don't make one key mistake that many people make after paying off a credit card: Don't close that account.

This might sound counterintuitive. After all, if you close a credit card account, you won't be able to run up debt on that plastic again. But closing a credit card account could hurt your credit score.

Why? It's because of something called your credit utilization ratio. This ratio measures how much of your available credit you are using. The more of your credit you are using, the worse it is for your credit score. If you carry any credit card debt at the end of a month, closing an account that you've paid off will automatically increase your credit utilization ratio.

Here's an example: Say you have $5,000 worth of credit card debt on three cards with a total credit limit of $20,000. This comes out to a credit utilization ratio of 25%. But if you close that third card and it has a credit limit of $5,000, you'll be left with $5,000 worth of debt on a total credit limit of $15,000. That comes out to a credit-utilization ratio of slightly more than 33%.

The key, then, is to keep your credit card accounts open even if you don't plan on ever using your paid-off accounts again. It's smart not to run up debt on those cards again, but keep the accounts open anyway. This way, you'll protect your credit score.

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