Should I Cancel a 0% Card Before the Rate Expires?

By Joan Goldwasser, Senior Reporter

From Kiplinger's Personal Finance magazine, November 2008

Q: To finance my fiancée's engagement ring, I got a credit card that has a 0% rate for six months. I plan to pay off the balance before the six-month intro period expires and then cancel the card. Is that a good plan? Will canceling the card negatively affect my credit score?

Keep the account open, recommends John Ulzheimer, president of consumer education at Credit.com, and use it occasionally so the lender won't close the account for inactivity. Assuming you have a "thin" credit file without much history, says Ulzheimer, the damage to your score has already been done. Unlike an older credit user with a long credit history, you've already added a new credit obligation, so you've lowered your score slightly.

By the end of the six months, however, your score will have recovered, assuming you manage your finances responsibly. If you cancel the card then, you eliminate its credit limit and your score will again drop because you will increase your credit-utilization ratio (the percentage of your total credit you are using). Your best bet is to keep your ratio at no more than 50%.

If you're worried about the card being stolen, shred it or put it in the freezer. Otherwise, use it once a quarter for an inexpensive purchase just to keep the account open and to build up your credit history.

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