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Added May 25, 2012 from: Joe Taylor Jr.
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Answered By Joe Taylor Jr.:

FICO's Rachel Bell recently covered some of the common "scoring myths" on her company's official blog. Her response to the same question illustrates how much has changed since last decade's credit crunch rewrote the rules about lender risk.

Bell writes that lenders now feel that having extra available credit shows that you're actually less of a risk. Over time, an extra line of credit can assure lenders that you can resist the temptation to max out all of your available credit cards. FICO's latest scoring algorithms actually reward you for maintaining relationships with multiple lenders. In some situations, Bell says, closing that old account can cause your credit score to drop.

Instead, Bell and other FICO insiders stress focusing on your overall credit utilization rate. Competing credit scoring algorithms handle the math in different ways, but the results echo the same philosophy. Keep your balances as low as possible without hitting absolute zero, so the giant robots that calculate your score can see you're not just sitting on a stack of unused accounts. As a best practice, set up a small, recurring charge on each of your credit cards that you don't carry every day. Let that charge hit your monthly statement, so your lender reports something to the credit bureaus. Use your bank's bill payment service to set the process on autopilot.

However, I can still think of a few cases when you'd want to close out your old account after a successful balance transfer. First, if you or your spouse can't resist the call of that open credit line, cancel the account as soon as you've confirmed that balance transfer has cleared. Better to lose a few FICO points right now than to find yourself in debt later. You may also want to close that old account if it's annual fee got too high or there are other service charges that won't add value to your personal finance strategy.

This question is about:  Balance Transfers
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