How credit card inactivity affects your credit score

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There may come a time when you realize that you have broken up with one of your credit cards. Maybe not intentionally; it could be that it’s an old card that you got when you were first starting out, like a gas or other retail card, and you just find yourself not using it much anymore.

Maybe the interest rate or annual fee is too high. Maybe the rewards aren’t something you ever use. While there may be a good reason to stop using a credit card, you should know what that might mean to your credit score. Breaking up may not be hard to do (apologies to Neil Sedaka), but is it wise? Let’s look at the issue a little closer this week.

Can a credit card be closed due to inactivity?

The short answer here 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. They may be able to reinstate the account if you contact them 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.

I have a favorite card that goes way back to when I was just starting a business but that I haven’t used in a long time. It’s just sentiment, but when it was about to be closed I asked for it to stay open and the issuer was happy to keep me on. This is understandable since they pay big money to acquire and keep a customer and I was offering to stay for free.

Do unused credit cards hurt your score?

Earlier we discussed how a card you got when you were first starting out may be one that you don’t use much (if at all) anymore. But that card is important to two 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 cumulative 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.

VantageScore and FICO both will bring the age of the account on which you are an authorized user over to your file and it will score as an oldie. Otherwise, just like your actual age, your credit age can only be as old as it is. If you later choose to close an old account, your closed account continues to be taken into consideration in the score, but only as long as it is still reported (usually 10 years for accounts in good standing).

You must also consider your credit utilization ratio, which calculates how much of your available credit you have used. While my recommendation is to keep that number below about 25 percent of your overall credit line, people with the best credit scores tend to have a number in the single digits.

Utilization is second only to payment history in importance to your FICO score, counting for 30 percent. Having credit available to you and using it wisely is important to your score, but a zero 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% 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, you can use it in such a way that will limit or even negate your being charged any interest at all.

Small purchases

You can do this by using the card for items that you already have in your monthly budget or spending plan. Gas, groceries or personal items are good choices here. If you use the card for one of these purchases monthly and pay the balance in full before your due date, you will not be charged any interest. So that high interest rate becomes a moot point.

Auto-pay

You might also consider using the card for automatic payments. Once again, these would be in your monthly budget, so when the credit card bill arrives you will have the funds available to pay it off. Using your card in either of these ways will keep your card active. Paying the balance monthly will keep you out of debt and also keep you from paying interest on your purchases. These are all good for your credit score, by demonstrating responsible use of the credit you have been given.

Bottom line

As noted above, if the card charges you an annual fee, you want to be sure that it is worth the price you are paying. If reward points are offered, are you able to use them? When you are determining the card’s worth to your score’s bottom line, don’t forget to consider where the card is in your credit history. Your oldest card is one you should only close after careful consideration. But actual costs are important too, so don’t let that stop you. The main thing is to be aware of what your choices will do to your overall score.

Good luck!

Have a credit score question for Steve? Drop him a line at the Ask Bankrate Experts page.