The following information is curtosey of myfico.com. Please note that in this example; we assume that questioner (Erick) is asking whether to close a credit card account that is in good standing. 

Dear myFICO,

I’m trying to get my finances under control and would like to consolidate the 6 credit cards I currently have into 1 or 2 cards that have zero-balance transfer options plus lower interest rates.

What should I do with the cards I no longer want to use? I’ve heard that closing them can affect my FICO score.

Eric
Chicago, Illinois

Dear Eric,

How closing and opening credit cards affects your FICO® score is a common concern, so you’re smart to get the lowdown before doing something that could hurt your score. The short answer: we never recommend closing old or unused credit cards because this rarely helps your FICO score .

Here are some basic guidelines for credit cards that can stop you from unnecessarily dinging your FICO score:

• Only apply for credit if you need it and plan on using it.
• Don’t close the old cards that you’re not planning to use any longer.
• Only fill out an application for the credit card that meets your needs.
• Find out which actions help and hurt your FICO score. This free booklet is a great place to start!

Only apply for credit if you need it and plan on using it. No, saving 10% on your purchases at department stores doesn’t qualify as needing credit. Often, the initial 10% savings is far offset by the typically high-interest rates these cards charge. If you don’t pay the full balance off the first month, you could end up paying far more then the initial 10% savings. Opening unnecessary accounts can also backfire when you need to make a big purchase and find that your score has dropped causing you to no longer qualify for the best rates. There is no "golden number" of charge cards, but opening cards just to gain a small savings is usually a bad idea.

Don’t close the old cards that you’re not planning to use any longer. I know this may seem counter-intuitive, but there’s a fairly simple explanation. One of the most important factors in your FICO score is your balance to available credit ratio. Using all or most of your available credit can be a sign of looming financial stress. How does this ratio work? Let’s say you have $5,000 in available credit and are using $1,000, this is better than if you had $1,000 in available credit and are using $500. The ratio in the first case is only 20%, but the ratio in the second is 50%. Closing an unused credit card wipes away some of your available credit and causes this ratio to increase.

Only fill out an application for the credit card that meets your needs. Each time you apply for a credit card, a credit inquiry is added to your credit report. The credit-card companies do this to decide if you’re creditworthy, and if so, how much credit to extend to you and at what interest rate. Although these credit inquiries don’t usually significantly hurt your FICO score, they can lower it. Especially if you have many credit inquiries within a year. For that reason, consolidating your current balances to 1 card instead of 2 would be better. Credit inquiries can lower your score because people who are actively seeking credit have been proven to pose more risk to lenders than people who are not seeking credit. So, shop around for good deals, but only fill out an application for the right card! And don’t worry about checking your own FICO score – that type of inquiry has no effect on your FICO score.

Find out which actions help and hurt your FICO score. There’s no point in guessing when you can get this information for free! And taking advice from your local know-it-all can be a recipe for disaster. Take 10 minutes to read this short booklet called Understanding your FICO Score. Reading it will help you make sure that you keep up FICO healthy behavior!

Sincerely,
myFICO Team

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401(k) plans are retirement vehicles that allow employees to save for their own retirement. This type of plan was named for section 401(k) of the Internal Revenue Code, which permits employees of qualifying companies to set aside tax-deferred funds. We at 401k Forum are proud to have the person who first developed the 401(k) plan, Ted Benna, as a member of our Board of Directors. By making this change to the Code in 1978, the government opened the door for more efficient retirement planning for all Americans. It's no exaggeration to say the 401(k) plan is the most important national retirement effort since Social Security was introduced in the 1930s.

How It Works
The 401(k) mechanism is fairly simple. The plan is set up by your employer as a defined contribution retirement arrangement. That means you are the one who pays into the plan, although your employer and the plan provider who offers your 401(k) do just about all the work.

Your 401(k) contribution is automatically deducted from your paycheck each pay period. This money is taken out and invested before your paycheck is taxed. After you have decided what percentage you want deducted from your check, and how you want to invest it, your work is pretty much done.

Once the money is deducted from your paycheck, you can't spend it, but it is yours. It grows in your personal 401(k) account. Although you can withdraw the money for certain emergencies or in some cases borrow against your investment, the money is intended to stay in your account until you are at least 59 1/2.

While the investment is growing in your 401(k) account, you do not pay any taxes on it. When you withdraw the money at retirement, you pay taxes on the amount you withdraw from your account (so you pay taxes little by little instead of being hit with one big bill).

Employer Match
In some cases, employers make their own contributions to your 401(k) plan. This contribution takes the form of an employer match on your contribution. Usually the employer matches a certain percentage of your contribution. For example, an employer may elect to put in 50 cents for every dollar you contribute. That's an immediate return on your contribution, regardless of how you invest your 401(k) money.

Not every employer matches the employee contribution, but in some cases the company will match the employee contribution dollar-for-dollar.

What Do You Have To Do?
A 401(k) plan is an investment vehicle. Within the particular plan offered by your employer there are a number of investment options (each plan has a different set of options). These options may include mutual funds, guaranteed investment contracts (GICs) and, in some cases, stock in your employer. You decide which of these investments you want to buy, and how much of your total contribution you want to put in each.

This is a key difference between paying into Social Security and contributing to a 401(k). With Social Security, Uncle Sam decides how to invest your money. With a 401(k) plan, you decide for yourself. That may seem scary, but it gives you the opportunity to invest in a range of high-quality, professionally managed and potentially very lucrative investments. The Social Security Administration, on the other hand is legally obligated to stick to a very narrow range of investments.

How Do You Know Your Money Is Safe In Someone Else's Hands?
It is very easy to keep track of the savings in your 401(k) account. At regular intervals, you will receive an update telling you how your investments performed. Most plans also provide toll-free numbers and web sites you can access to keep track of your 401(k) holdings. You can move the money around within your plan easily.

A 401(k) is the easiest savings plan available to most American workers. It makes investing convenient and simple, and encourages you to save for the long term.

401(k) plans are retirement vehicles that allow employees to save for their own retirement. This type of plan was named for section 401(k) of the Internal Revenue Code, which permits employees of qualifying companies to set aside tax-deferred funds. We at 401k Forum are proud to have the person who first developed the 401(k) plan, Ted Benna, as a member of our Board of Directors. By making this change to the Code in 1978, the government opened the door for more efficient retirement planning for all Americans. It's no exaggeration to say the 401(k) plan is the most important national retirement effort since Social Security was introduced in the 1930s.

How It Works

The 401(k) mechanism is fairly simple. The plan is set up by your employer as a defined contribution retirement arrangement. That means you are the one who pays into the plan, although your employer and the plan provider who offers your 401(k) do just about all the work.

Your 401(k) contribution is automatically deducted from your paycheck each pay period. This money is taken out and invested before your paycheck is taxed. After you have decided what percentage you want deducted from your check, and how you want to invest it, your work is pretty much done.

Once the money is deducted from your paycheck, you can't spend it, but it is yours. It grows in your personal 401(k) account. Although you can withdraw the money for certain emergencies or in some cases borrow against your investment, the money is intended to stay in your account until you are at least 59 1/2.

While the investment is growing in your 401(k) account, you do not pay any taxes on it. When you withdraw the money at retirement, you pay taxes on the amount you withdraw from your account (so you pay taxes little by little instead of being hit with one big bill).

Employer Match

In some cases, employers make their own contributions to your 401(k) plan. This contribution takes the form of an employer match on your contribution. Usually the employer matches a certain percentage of your contribution. For example, an employer may elect to put in 50 cents for every dollar you contribute. That's an immediate return on your contribution, regardless of how you invest your 401(k) money.

Not every employer matches the employee contribution, but in some cases the company will match the employee contribution dollar-for-dollar.

What Do You Have To Do?

A 401(k) plan is an investment vehicle. Within the particular plan offered by your employer there are a number of investment options (each plan has a different set of options). These options may include mutual funds, guaranteed investment contracts (GICs) and, in some cases, stock in your employer. You decide which of these investments you want to buy, and how much of your total contribution you want to put in each.

This is a key difference between paying into Social Security and contributing to a 401(k). With Social Security, Uncle Sam decides how to invest your money. With a 401(k) plan, you decide for yourself. That may seem scary, but it gives you the opportunity to invest in a range of high-quality, professionally managed and potentially very lucrative investments. The Social Security Administration, on the other hand is legally obligated to stick to a very narrow range of investments.

How Do You Know Your Money Is Safe In Someone Else's Hands?

It is very easy to keep track of the savings in your 401(k) account. At regular intervals, you will receive an update telling you how your investments performed. Most plans also provide toll-free numbers and web sites you can access to keep track of your 401(k) holdings. You can move the money around within your plan easily.

A 401(k) is the easiest savings plan available to most American workers. It makes investing convenient and simple, and encourages you to save for the long term.

Why they Matter

New credit is one of the factors used to determine your credit score. In fact, new credit accounts for 10 percent of your credit score.

Hard inquiries are considered a subset of the new credit category.

According to Fair, Isaac & Co., the information about inquiries that can be factored into your FICO score includes:

• the number of recently opened accounts that you have and the proportion of accounts that are recently opened compared with long-standing accounts, by type of account;
• the number of recent inquiries;
• the time since recent account openings, by type of account; and
• the time since you last had any credit inquiries.

As Fair, Isaac & Co. writes on its Web site:

For many people, one additional credit inquiry (voluntary and initiated by an application for credit) may not affect their FICO score at all. For others, one additional inquiry would take less than 5 points off their FICO score.

Inquiries can have a greater impact, however, if you have few accounts or a short credit history. Large numbers of inquiries also mean greater risk.

According to Fair, Isaac, people with six inquiries or more on their credit reports are eight times more likely to declare bankruptcy than people with no inquiries on their reports

Auto Loans & Mortgages

That said, the credit industry understands the importance of comparison shopping for auto loans and mortgages. In fact, most lenders want to encourage shopping—since it increases the chance that you’ll give them a try. So, some changes to credit scoring models make in the 1990s and 2000s take into account the likelihood that a smart borrower may generate multiple inquiries along these lines.

Under the FICO scoring model, it doesn’t matter how many inquiries for an auto or home loan that you generate in a 14-day period. They all count as a single inquiry.

What’s more, your score does not include any mortgage or auto loan inquiries that were made in the 30 days prior to scoring. So, you’ve essentially got 44 days to get your act together.

Once you’ve started filling out applications and generating inquiries, remember: The clock is ticking.

Inquiries That Don't Hurt

So-called "soft" inquiries do appear on your credit report, but they do not affect your credit rating.

Soft inquiries include:

• your own requests for your credit report;
• credit checks performed by companies that want to send you a marketing offer;
• inquiries made by lenders or other businesses with which you already have an account; and
• inquiries made by prospective employers.

Also, some middlemen—like credit counselors and loan brokers—may pull your credit. And they may allow several lenders to pull it, too. In most cases, these will all be considered soft inquiries

Credit Card Inquiries

While credit scoring models will cut you some slack when you’re comparison shopping for an auto or home loan, they are not so approving of multiple inquiries from credit card issuers.

One reason: You may have opened one or more credit card accounts within the last month or so, and they wouldn’t appear on your credit report just yet.

And, not to say that you would do so, but some people open a lot of credit card accounts at one time when they’re planning to run up a whole lot of debt—and not pay it back.

On this count, the credit bureau Experian echoes Fair, Isaac’s conclusions:

The more inquiries that appear on a borrower’s credit file, the more likely a borrower may not be able to pay his or her bills as agreed.

Lenders are vague about how many inquiries in what period of time scare them away. But the consensus is that lenders look at credit card inquiries going back six months. If you have six or 10 inquiries in that time period, you could be considered high-risk—even if your score is good.

Inquiries that happened more than six months ago typically are not a concern, since lenders figure you would have opened the account by now, and it would show up on your credit report.

On the other hand, if you do open up several credit card accounts at about the same time, you can be sure you’ll be throwing up some red flags.

Three Steps to Save You $3,000

According to credit.com you can save up to $3,00 when you buy a car by using these three steps:

1. Credit Check

Not checking your credit before you start shopping for a car is a huge mistake. Because your auto loan rates are directly tied to your credit scores, even a small inaccuracy on your credit report could cost you. Before you start shopping for your dream car, take an hour to check all three of your credit reports and credit scores online. You need to check all three credit bureaus because you don’t know which one a lender will use for your application. If you have a credit score above 750, you can probably qualify for the best rates available and negotiate an excellent deal on your car. If your credit score is lower, see if you can’t give it a boost before you apply for a loan.

2. Shop Online

Unless you have a perfect credit score in the 800’s and can qualify for a 0% offer, you are probably not going to get a good deal on a loan directly from the dealership. Auto loan rates and fees offered by online auto lenders are usually a lot lower than the rates offered by a dealership’s financing program.

Plus, you can shop and compare rates online without causing damaging inquiries to your credit report. Most online lenders have calculators or rate guides that show you what rate you could receive based upon your credit score.

With an online loan, you fill out the application and receive an approval by email within a few hours. Then the lender mails you a check that is ready to be made out to the person or business selling the car. If you end up not buying a car or not using the loan, you simply toss the check (shredding it first of course). Plus, the check from the lender usually specifies a certain price range (for example, $9,000-$10,000). This leaves you with some room for negotiating a lower price with the seller even after you have received your loan approval.

3. Negotiate the Price

According to the book Women Don’t Ask, women are willing to pay $1,353 more just in order to avoid negotiating the price of a car with a salesperson. That’s a lot of lost money, especially if you are financing the car with a long auto loan. Luckily, the internet makes negotiating with car dealers a whole lot easier. Before you start shopping, look up the listed price, invoice, and MSRP of the car you want through an unbiased site like Kelley Blue Book and request free price quotes online. Armed with these facts, you’ll have an advantage over the salesperson when you start the negotiations. You should be able to save a couple hundred dollars, if not a few thousands, by negotiating with the car salesperson before you decide to buy.

Three years ago, R. Boeding, retired from his 35-year job with an electric company. His employer gave him a choice: take his retirement fund money ($450,000) all at once or let the company pay out fixed amounts over time from his account.

If he chose the latter and died early, his wife would only get half the amount.

"It was a no-brainer," said Boeding, who was 55 when he retired. He wanted the money so he took the lump sum, which he then rolled into an IRA.

He faced the question many retirees and job hoppers face: do I leave my money in the 401(k) or other employer-sponsored plan, cash out, or roll it into an IRA? That's a big decision and making the wrong one can be costly.

You might want to consider rolling your money into an IRA because that will enable you to continue to keep your money sheltered from tax as well as continuously invested. Here's the low-down on when and how you can take the money, and why you might want to.

When To Roll Your 401(k) Into An IRA
You can roll your 401(k) money into an IRA only in certain circumstances. Those are: when you quit or are fired from your job, or retire. You can't roll over your 401(k) funds into an IRA while you are still working for the same employer just because you don't like the investment choices in your plan.

Why Roll Your Money Over: General
Take Control: Regardless of whether you're changing jobs or retiring, rolling your retirement money into an IRA gives you control of it.

"Without a doubt, when you leave a company take your money with you," said Michelle Anderson, vice president of personal investment counselors with First Union Brokerage Services Inc. "If you roll into an IRA, you get the money 100% in your control. ... (It) can let you access any investment you want. You aren't limited," she said.

Say you didn't like the investment choices with your 401(k) plan. With a rollover IRA you may have much more flexibility in your investment options.

Indeed, Boeding took advantage of this investment freedom. At retirement Boeding saw a financial planner, who advised him to invest in equity-based mutual funds. He did so and managed to catch on to the recent bull market run in the stock market.

"The portfolio is doing a good job ... and is growing $650 a month," he said.

Get More Data: You get more information about your investments when they're in an IRA than in a 401(k). Federal law is not nearly as strict with 401(k) plans as it is with IRAs when it comes to requiring distribution of informational materials about the funds.

"The information ... that a 401(k) plan has to give to participants is limited,"compared to an IRA, said Greg Thurin, District Manager and Personal Financial Advisor with American Express Financial Services.

Another reason you might want to move the money is that IRA account administrators, who are competing for your business, tend to be more responsive than 401(k) administrators and plan sponsors. Thurin recalls trying to help a client with a 401(k) set up a personal identification number to use over the toll-free number. "It took 15 minutes to establish a ... number," he said.

Simplify Recordkeeping:
With a rollover IRA, you can consolidate money from various plans into a single account. In turn that can simplify recordkeeping.

In today's fluid job market, folks regularly change jobs. Consequently, they end up with money scattered among several retirement plans. With a rollover IRA it can all be brought together, and that can really reduce the number of mailings you get from fund companies. "You can receive one statement, which would make understanding your investments easier," says Richard Casolari, managing partner of Executive Financial Group, a Chicago-based financial planning and insurance service company.

Why Roll Your Money Over: Retirees
Say it's your last day of work. As you finish your exit interview, the human resources person asks what you want to do with the money in your 401(k) plan.

You reply, "I was thinking about buying a new boat or taking a cruise around the world."

The manager says, "That's not what I mean. Do you want to roll it over into an IRA, or should I write you a check?" (If you have more than $5,000 in the account and you're under 65, you should also be able to leave the money in the plan, but your withdrawal options may be less flexible. You may also be charged an annual account maintenance fee.)

Your answer could mean the difference between a paying a big tax bill or not. If you take a lump-sum distribution, you will have to pay tax on it. If it is a large amount, it will probably push you into a higher tax bracket.

However, if you chose to directly roll the money into an IRA you won't have such a big tax hit. The money will smoothly move from one tax-sheltered account to another. Further, you can arrange to make regular withdrawals from the IRA so that you are taking out smaller amounts of money and paying less tax.

Additionally, if you roll your 401(k) money into an IRA, it can stay invested and continue earning profits, tax-deferred. If you take the money directly, you then have to open an investment account and you will have to pay taxes on all profits you earn from that point forward.

Why Roll Your Money Over: Current Workers
Many workers don't know about their options. They completely cash out of the plan, pay a big tax bill and deplete their retirement savings.

"You will lose half of your money if you cash out," said Gary Hooker, a certified financial planner and CEO of Diversified Planning Concepts, a San Francisco-based financial planning firm. "Why take that big a hit? I've never seen any reason to take your money out unless you are starving."

One caveat, regardless of your situation, some 401(k) plans won't let you take your money out until you reach 59½. Check with your plan sponsor to find out the rules for your specific situation.

Thanks to Blackstocks.com for sharing this information.

The time will come when the kids in your life will be old enough to earn their first income - whether it be from a lemonade stand, paper route or summer job.

The first two articles of our "kids and money" series examined ways to help children become wise savers and spenders. This final article looks at introducing kids to the idea that money saved and invested - in a bank or in the stock market - can earn more money, to supplement their income. Hopefully, this will help them avoid the fate of poet e e cummings when they grow up!

Sparking Interest in Interest

There's a scene in the movie Mary Poppins where young Michael Banks refuses to give up his tuppence to the bank manager, provoking general chaos and a run on the bank. Obviously, the world's greatest nanny hadn't done a very good job of explaining interest to her charge.

Kids often see things differently from grown-ups, and it's a good idea to give them visual aids or hands-on experience to illustrate how interest works. For a younger child, you might try putting two jars in a visible spot. Put the child's savings in one, and periodically add "interest" to the other one. That way the child sees her money earning money.

For an older child, seeing interest adding up on a bank statement might do the trick. You could occasionally give him the cash equivalent of the interest earned, for spending. Explain that the original money is still in the bank, tucked away for the future, and that this is extra.

Your bank may offer special conditions for children's savings accounts, such as a low initial deposit. You might want to check on this before you take your child in to open an account.

Banks "for kids only" also exist. The Young Americans Bank in Denver offers banking services to anyone under 22. A savings account can be started with a $10 minimum deposit, and the bank also offers CDs, checking accounts, and credit cards (with parental permission required for those under 18). If you don't live in Denver, you may bank by mail. The bank's web site has educational materials too.

An online bank, "Doughnet," caters to youngsters ages 13-18. It offers online banking and investing, and educational materials. The "budget" section shows kids how to work out whether they are overspending. Good thing, too - this site also has links to online shopping, and purchases can be made (surprise!) from the child's online account.

Stocks for Tots (and Teens)

Once children understand the concept of interest, they may want to raise the stakes. They may be ready for investing in stocks.

Some mutual fund companies offer funds geared toward youngsters, featuring companies familiar to kids and low initial investment requirements.

Alternatively, your child may want to choose individual stocks in companies whose products he knows and likes.

Children under age 18 can invest in stocks or mutual funds through custodial accounts. You should remember that once children turn 14, their unearned income over $650 is subject to tax (the "kiddie tax"). To keep the unearned income down, you might want to steer them toward stocks that pay low dividends, and mutual funds that don't pay dividends.

Of course, this means they will need to understand the concept of capital appreciation, as opposed to income.

The Web's the Place

A wide array of web sites caters to pre-teens and teens interested in investing their money. Wise parents will look at the sites first, or along with their children, to monitor the information they are getting and answer questions as they come up.

Good places to start are the Mutual Fund Education Alliance, which has pointers on investing for and by children, and the National Association of Investment Clubs, which has an online site for youth, with information about starting investing clubs.

Another site, Investing for Kids, bills itself as having been set up by high school kids for other kids. It features lessons and games about investing, and biographies of the students who set it up. However, this writer found that the message boards contain a lot of get-rich-quick schemes, and should be approached with caution. (This might be a good occasion to explain to your child that if something sounds too good to be true, it probably is.)