credit cards

How an old credit card helps credit scores

An unused credit card might just be taking up space in your wallet, but closing it could have a negative impact on your credit scores.

It's an even bigger issue if you've had a credit card for many years and haven't carried a balance for an extended period.

Keeping the card on hand and using it minimally, if at all, shows creditors you are able to handle credit responsibly.

And having that good credit history helps boost your credit scores, resulting in lower interest rate offers on mortgages, auto loans and new credit cards. Bankrate.com's 2011 Credit Card Rewards Survey can help you find the best credit card for you, based on your score.

Your FICO score is most commonly used by lenders to determine terms on loans. The score takes into account your payment history on various types of accounts; the amounts you owe; the length of your credit history; new credit, such as loans that you've recently applied for; and the type of credit you use, like credit cards, installment loans and mortgages.

Someone who has high credit limits and relatively low balances -- known as the credit utilization ratio -- tends to be looked upon favorably by lenders.

While you don't want to start carrying balances on an unused credit card, it can be important to pull that card out of your wallet from time to time. If you don't, you run the risk that the card issuer will cancel the card because of inactivity.

If the card is canceled, that can greatly impact your FICO score. Eventually, good credit history associated with that card will be wiped off your credit report. If you carry debt on other credit cards, losing the older card drives up your credit utilization ratio while driving down your credit score.

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