Paying off credit cards= good idea. Closing all your accts after you pay them off= not always a great idea if you are trying to build your credit file.

The credit scoring formula by all 3 repositories is a closely guarded secret. We do see patterns and use those to advice people as to what to do. One of those patterns is the limit to balance ratio. Part of your credit score is derived from that ratio. They basically take outstanding balances and measure it up against the high credit limits of all your creditors. They come up with a ratio which in turn sometimes shows if you're "over extended" or not. This is where the "stay below 50%" advice often heard. Sometimes it's actually more like 33%, but it's good advice regardless.

So in essence, if you close all your paid off accounts you are widdling down your available HIGH limit amounts and thereby possibly hurting your credit score in the process.

Example:

You have 5 CC's and a car note.

2 Visa- with a $1000 limit and $300 balance
2 MC- with $1000 limit and $500 balance
1 Amex- with $1000 limit and $300 balance
Car loan for a $25k car with a $23k balance.

Your pay all your bills on time and have a 700 score right now.

You pay off 2 Visas or worse....transfer those balances to another card.

You then have:

2 MC- with $1000 limit and $500 balances
1 Amex- with $1000 limt and $300 balances
Car loan with $23k balance still.

You suddenly have less number of cards, but your scored DROPS to say 670. Why? (BTW, these are all rhetorical numbers and are only used to show an example.)

So by paying off the 2 credit cards and CLOSING them, it watered down your ratio of HIGH credit (or available credit) to the balance amounts because you STILL have BALANCES, you just have LESS High credit limits to do the ratio with.

Follow that?

So it would be smarter, for credit score purposes, to have paid off those accounts BUT LEFT THEM OPEN because you would have $1300 worth of balances vs $5000 worth of high credit limits as opposed to $1300 worth of balances vs $3000 worth of high credit. The ratio of the first is better than the second. Get it?

So your credit SCORE would be better had you paid those two CC's off and left them OPEN vs paying them off and CLOSING them.

This is the reason why it is possible to have a middle of the road score by being "maxed out" vs a stellar score if you keep the balances sensible. I've seen people who have never had a single late payment on any account, yet have mediocre score because all their accounts are maxed out. They may pay on time, but that's not the only criteria bureaus use to derive your score. Timely payments weighs heavily and is the most drastic of the determining factors, but it's not the only one. Remember that.

Another problem I've seen often, and it may relate here, is INQUIRIES. Too many can and do negatively affect your score because in the scoring models used it counts as creditors ASKED for credit but they DENIED you. Most of the time that is far from the truth, but that's how it goes into the formula that calculates your score. It's very unfair, but that's the way it works. This is why you don't want every Tom, Dick, and Harry pulling your credit 50 times. It can and does screw up your credit score negatively.

My long

Hope it helps.