Dear Credit Care,

I have a bank issued credit card that has a $14.50 monthly fee. I just paid off the card last week and was thinking of canceling it. However, when I call they give me every reason not to. They tell me that the card is good for my credit score because they report to the credit bureaus four times a month. The card currently has a zero balance. I hear that getting rid of cards can hurt one's score. I just finished doing an overhaul on my credit. My score was below 600 about a year ago. Now my score is 700. The card has a $700 credit line. Should I just cancel it or pay the monthly fee? I just opened a different bank issued credit card with a $1,000 credit line so that I can transfer some balances from other high interest cards. I also just received a $250 credit line increase from another credit card. Thanks for your time.  

- Wayne

Dear Wayne,

Congratulations on managing your credit in a positive way and increasing your credit score. Remember that your credit score is calculated based on what is reported to the three major credit bureaus. How you manage your credit accounts is the information that is reported to the bureaus. So, you have improved your credit by making good decisions about how you manage your accounts, which includes making payments on time and as agreed and also paying down existing debt balances.

I recommend that you keep in mind your overall credit usage and goals when deciding what to do about a credit card account that charges a monthly fee. It is true that canceling a credit card account  may temporarily cause a drop in your credit score, particularly if it is one of your oldest credit accounts. However, keeping an account open that charges a monthly fee and that you don't plan to use may not make sense when it comes to the best way to manage your finances.

Having a good credit score and credit history are important for future borrowing and in other areas of your life, such as renting an apartment, seeking employment or insurance rates you may be charged. But decisions about credit should be based on your overall financial goals, not solely on how your actions might affect your three-digit credit score.

For example, if you decided to keep the credit card account open with the $14.50 monthly fee, it would cost you $174 per year. Over five years, it would cost $870. This is money that you could be using to pay down other debt balances, saving for retirement or using to fund a particular financial goal such as a summer vacation.

Unless you are planning to apply for a mortgage or car loan in the near future where every point in your credit score could make a significant difference in the terms of the loan, a possible temporary drop in your credit score from closing the account should not keep you from doing so. If your credit score does slip a bit, it will bounce back and continue to improve as you continue to successfully manage your credit.

Handle your credit with care!