It is often assumed that once a credit card or other debt is paid off the account should be closed in order to improve one's credit rating and to keep the banks and lenders happy, but in many cases borrowers may be better off keeping their accounts open.

Since your credit score is calculated in part based on the proportion of outstanding debts to total credit available, closing down unused credit cards accounts or reducing your overdraft limit can reduce your 'total credit available' considerably and so dramatically increase the proportion of outstanding debt to debt available.

As an example, consider Joe's personal finances in the table below:

As things stand, Joe is borrowing £1,423 of the £4,000 available to him - roughly 36% of his overall limit.

Should he close his dormant Lloyds credit card account he will lose £1,500 of the overall credit, leaving him with a debt of £1,423 out of a total of £2,500 available credit - which amounts to 57% of the credit available, a dramatic increase.

It is true that after struggling to pay off credit card debts, grappling with monthly payments and finally clearing the balance off a card there is nothing more satisfying than cutting the card up and closing down the account, but this does have implications for your credit score.

Financial discipline is important - if you feel you will not succumb to temptation again, why not cut up your card once your debts are paid but leave the account open to improve your credit score and history. If you are concerned you may splurge again, then it is probably better in the long term to close your accounts as soon as they are paid off.