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There may come a time when you realize that you have stopped using one of your credit cards. Maybe not even intentionally; it could be that it’s an old card that you got when you were first starting out and you just don’t need it much anymore. Or it’s a retail card for a store you no longer shop at, or a gas card from before you sold your car and moved to the city.
Credit cards are a useful financial tool, but as life changes so do the needs you may have from your card. Whether it be high annual fees, costly interest rates or rewards that just aren’t cutting it, there are plenty of reasons your credit card may have become less useful.
While there may be a good reason to stop using a credit card, you should know what that might mean for your credit score. Here’s how credit card inactivity may affect your credit score and how to manage changes.
Can a credit card be closed due to inactivity?
The short answer is yes. And, as you know, closing an account can have an adverse effect on your credit score. Before you run out to charge something just to keep your account active, you should know that it usually takes a year or more of inactivity for the issuer to close the card. But you should also know that you might not get any warning that it is going to happen. Credit card companies are not required to notify customers of account closures if they are being closed due to inactivity.
If you do find that an account has been closed and you want to reopen it, you will need to contact the issuer. You may be able to get your account reinstated if you contact your issuer soon enough. Issuers have different policies, so it is not a given that you will be able to do so. But it won’t hurt to ask.
Do unused credit cards hurt your score?
Even if you may not use your card often (or at all) it’s important to remember that it still affects two credit scoring factors: your length of history using credit and your utilization rate.
Your length of credit history is a factor that makes up 15 percent of your overall FICO score. This is really the only portion of your overall score that you have relatively little control over—that is until you decide to close one or more accounts. Length of credit history is calculated two ways—both by the age of your oldest account and by the average age of all of your accounts.
When you are first starting out in the credit world there’s no way to magically age your history unless you are an authorized user on someone else’s old account. Both VantageScore and FICO will bring the age of the account on which you are an authorized user over to your file.
If you later choose to close an old authorized user account, your closed account will be taken into consideration in the score if it is still reported. Other closed accounts in good standing will linger on your credit report for up to 10 years.
You must also consider your credit utilization ratio, which shows how much of your total available credit you have used. It is generally considered best practice to keep your credit utilization below about 30 percent of your overall credit line, though people with the best credit scores tend to have a number in the single digits.
Utilization is the second most important factor (after payment history) in your FICO credit score, accounting for 30 percent. Having credit available to you and using it wisely is important to your score but a 0 percent utilization rate won’t help you much, as odd as that may seem. Why? Because there would be less data for the score to use to figure your lending risk if you didn’t have a utilization factor to calculate. Carrying a small balance, even as little as 1 percent of your limit, can help your utilization rate and overall score.
How to keep your credit cards active without hurting your score
This can be done in a couple of different ways. If you don’t use the card because the interest rate is high, consider using it only for smaller, predictable purchases each month, such as gas, your weekend coffee run or take out once a month.
If you want to keep your card active without having to remember making small charges, set your card up for recurring automatic payments, like a Netflix subscription or your utility bill.
Making regular transactions on your credit card, even if it’s just once a month, and then paying it off in full demonstrates responsible use of your credit and is good for your credit score. Paying the balance in full before your due date also means you won’t be charged any interest. So that high interest rate becomes a moot point.
The bottom line
Credit card inactivity will eventually result in your account being closed, so it’s a good idea to maintain at least a small amount of activity on each of your cards. A closed account can have a negative impact on your credit score so consider keeping your cards open and active whenever possible. When you are determining the card’s worth to your credit score’s bottom line, don’t forget to consider where the card is in your credit history, as letting one of your earlier cards close due to inactivity can significantly curtail your length of credit history.