Q. I would like to know how paid off and not used store credit cards affect my credit score. Should I close them or should I leave them open (I don't want to use them any more)?

A. A paid off credit card is a plus when calculating your credit score – so don’t cancel them.

That’s because the standard formula lenders use considers how much of your available credit you’ve spent.

Let’s say, for example, that you have three credit cards, each with a $3,000 credit limit. You have one that is paid off, but you owe $1,000 on each of the other two.

You would have $9,000 worth of credit and owe $2,000, or 22.2% of your available credit. 

If you canceled the card with no balance, you would reduce your available credit to $6,000 but still have $2,000 in debt. The cold-hearted credit score formula now calculates that you’ve spent 33.3% of your available credit and will punish you for that.

The best way to boost your credit score is to keep your all your cards and payoff as much of the balance as you can. Cut the cards up if that helps, but don’t close the accounts.

Q. I read your article concerning what to do to make your credit rating better. My problem is I am so far in debt ($26,000) I am thinking of trying bankruptcy. What can I do and is there a company that gives loans to stupid people like me? My rating is probably the lowest it can get. I had a high rating of 700 just three years ago. I am at my wits end in knowing what and where to turn for help.

A. You need to work with a credit counselor who can:

• Negotiate a realistic, 36- to 60-month repayment schedule with your creditors.
• Get them to reduce or waive many of the late fees and other penalties they’ve imposed.
• Stop most if not all of the harassing phone calls you’re undoubtedly getting from collection agencies.
• Help you reestablish credit after your debt is paid.

Unfortunately, some of the most-heavily promoted “non-profit credit counselors” are really in it for the money. Your money. And you’ve got to avoid them.

So we recommend that you go to www.nfcc.org. The National Foundation for Credit Counseling is the nation’s biggest and oldest credit-counseling organization. Its 120 member agencies abide by a set of professional and ethical standards that has served many individuals and families very well over the past 50 years.

To find a member agency near you, click on “Consumer Debt Advice” on the left-hand side of the page, and then on “Member Agency Locator” under “Contact Us” on the second page. Use the “Zip Code Search” to get a list of nearby agencies. Click on the individual agencies to find everything from fees to office hours.

The fees will be very modest. Many NFCC members charge nothing to review your finances and less than $100 to establish a debt repayment plan.

Have a question about your finances? Ask us at editors@interest.com.

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