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I used to have an average/low credit rating (experian) because I never had any lines of credit. I got a Barclaycard on a promotional offer, so for a year they have not charged me any interest for using the card.

I always pay off the balance in full every month, and the card has improved my credit rating.

The promotional offer on the card expires this April. So come April, I will be charged a very high interest rate for any balance I carry over. Should I close this account and try to get another 0% offer from a different company?

I always clear the balance, but I like the comfort of being able to carry a balance, should I need to, without having to worry about paying interest.

This is especially useful for paying back large purchases over a couple of months.

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You'd be affecting two factors that hurt your credit score in the short term - new credit inquiries and average age of credit.

If you plan on paying the balance every month, I'd just keep the card you have and use the interest rate as a disincentive to overuse the card in one period.

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  • On the other hand, they'd be increasing their overall credit and presumably lowering utilization which is a much bigger factor and lasts long-term. – Daniel Feb 26 at 0:02
  • @Daniel Not if they close the original account, which was part of the plan. – D Stanley Feb 26 at 13:26
  • True, but "don't close credit accounts that are in good standing" is a generally applicable rule of thumb and could be added to the answer. – Daniel Feb 26 at 14:34
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I think there's an important distinction to make here, in that you're really asking two (not directly related, from a credit score perspective) questions:

Should I close this account

From a purely credit-score perspective, no - definitely do not close this account. Carrying a credit card account you're not using usually has a net positive impact on your score:

  • it helps keep your average utilization low
  • it will slowly help your average age of credit go up
  • it will help keep your credit mix good

You also asked,

and try to get another 0% offer from a different company?

I always clear the balance, but I like the comfort of being able to carry a balance, should I need to

If you're thinking about this from a credit score perspective, opening another account will have a number of impacts:

  • the hard pull on your credit report (which the bank will do to approve your application) will drop your score by a small amount for a short time (a few years)
  • your average age of credit will drop, because the new account inherently has a zero age at first. This will slowly creep back up as the new account gets older
  • your average utilization may go up or down, depending on whether or not you actually do ever carry a balance.

Of course, if you do literally need to carry a balance, having the promo rate is a good thing. But if you never plan on carrying a balance, and you're concerned about your credit score in the short term, it probably makes sense to not open the other account. If you're concerned in the long term, it's probably a wash, since:

  • two cards sitting at zero aren't any different than one sitting at zero from a utilization perspective,
  • credit mix won't be substantially different
  • average age of credit - in the long term - will tend to balance back out
  • the hard pull will eventually age off.
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This is especially useful for paying back large purchases over a couple of months.

CC interest doesn't work the way you think it does.

I, for example, have made some very large purchases with an 18% card, which I paid for over 2-3 months. However, I never paid interest.

Why? Because on a standard card without any 0% specials, cash withdrawals, etc, payments are always applied to the oldest charges first.

Thus, while you think that you pay your normal monthly charges every month, but haven't fully paid for that fancy new TV, the bank thinks you have.

An example: enter image description here

(This amazing trick won't work perfectly if you buy something really expensive and only charge a couple of hundred dollars per month, but even it would minimize your interest paid.)

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  • Um. Could you explain in more detail how this works? – chepner Feb 25 at 21:23
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    "large charge that you'll pay off monthly" This is the part I'm not getting. If I haven't paid that all by the end of the month, I have a balance carried over to the next billing cycle. How is that not incurring interest, regardless of which charges my payments are applied to? – chepner Feb 25 at 22:57
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    You are only paying for your TV over time in your own internal bookkeeping; by Feb 14, a week before your January bill is due, you've paid off the entire January balance, plus a tiny bit of your February balance. – chepner Feb 25 at 23:12
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    I don't think "pay your normal monthly charges every month" will mean "make the payments 3 weeks the due date" to most people. – chepner Feb 25 at 23:25
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    My credit card doesn't work this way. If I charge $3500 and make $1900 in payments during January, then my January bill (due Feb 21st) is $1600. Agree with your point that this is all being credited against the oldest item first, I just don't follow your maths. Also, my credit card doesn't charge me any extra if I pay that $1900 on Feb 21st or during the month, as you have. The only reason to pay them early is when you're near the credit limit. You may not be paying interest, but you're forgoing interest you could be earning on the $1900. – Rupert Morrish Feb 26 at 19:31

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