Keeping Your Credit Score High in Retirement

Dear Let's Talk Credit,

I am confused about whether to close credit card accounts that I do not use. I have an excessive amount of money, more than $100,000, in available credit on the cards, if I was crazy enough to max them out. Some of them my husband used when he was in business, but he's retired now. We both are retired, and I just need to know whether to call and cancel or leave them alone. I owe about $1,800 total on all the cards.

- Elizabeth

Dear Elizabeth,

All that available credit certainly can be tempting! I know you are only joking about maxing out credit cards -- that's never a good idea, particularly when you are retired. In fact, I would encourage you to pay off the $1,800 in balances that you currently have on your cards and, in the future, only charge what you can pay off in full each month.

Now, for your question. During your retirement years, keeping two or three open credit card accounts with reasonable credit limits makes sense. Credit cards provide the convenience of paying with credit without having to carry cash, as well as the added benefit of any reward programs and the consumer protections that apply when purchasing goods with credit. However, you don't need or want access to more than $100,000 of credit.

Several things should be considered when choosing which cards to keep open:

First, try to keep your oldest accounts open. Length of credit history is a factor in your credit score. Positive, closed accounts are generally removed from your credit report after 10 years, so you would eventually lose all that positive credit history.

Second, take a look at how you plan to use the cards and review any fees associated with the accounts. For example, if your rewards card has a hefty annual fee, you should decide if you are receiving enough benefit in exchange for the annual fee.

Finally, keep in mind that closing all but two or three of your accounts may negatively affect your credit utilization ratio and, in turn, your credit score.

Currently, you have more than $100,000 in available credit and have only used $1,800 of it. This means your credit utilization ratio is very good at around 2%. Should you decide to close some accounts to give you access to only, say, $4,000 in total credit, your credit utilization ratio would be high at 45% and may lower your credit score, at least temporarily.

The ideal ratio is less than 10% of available credit used. So maybe a good target for you is a credit line of $20,000. Of course, once you pay off the $1,800, you will not be carrying any balances, so lower credit limits won't be an issue for your credit utilization ratio and would no longer negatively affect your credit score.

Good luck and thanks for writing! Let's keep talking!