Todd Ossenfort has been chief operating officer for Pioneer Credit Counseling since 1998. He writes our weekly “The Credit Guy” column, answering reader questions about credit counseling and debt issues.
Dear Credit Guy,
Let’s say I have three credit cards, which I have spent thousands of dollars on each throughout their lifetime, and I finish paying everything off.
Then I stop using those three credit cards for one year or longer. Will the credit card companies get rid of my credit cards due to inactivity? Or will they allow me to keep them since I have a history of spending a lot on them? – Dario
The short answer to your question is that some creditors will keep your accounts open and some won’t.
But before we talk about that, I want to congratulate you on your successful effort to pay off your credit card debt.
Your question tells me that you are concerned about how closing a credit card may impact your credit score, and that you understand the importance of credit history on your score.
The scoring value of credit history
Length of credit history is not the most important factor in credit scoring – that would be your payment history. Consistent, on-time payments are the most important factor and account for 35 percent of your credit score.
Length of credit history counts for about 15 percent of your score and includes how long the account has been open and how long it’s been since the account was used. Older accounts in good standing demonstrate a responsible use of credit.
It’s important to note that, even when an account is closed, it will stay on your credit report for up to 10 years, so you won’t lose your credit history anytime soon if you choose to close an account.
Video: FICO’s 5 credit score factors
How credit utilization affects your score
What is more relevant to your question and your score is the credit utilization ratio – the percentage of available credit that has been borrowed – which makes up about 30 percent of your score.
Having an open account with lots of credit available means your credit utilization rate is low. This is where losing those accounts could hurt you if you are carrying a balance on other cards.
For instance, if you have one card with a $10,000 credit limit and a zero balance, and another card with a $5,000 credit limit with a $4,000 balance, your overall utilization ratio is 27 percent. But if the $10,000 limit card is canceled due to inactivity, your credit utilization rate would jump to 80 percent.
Such a dramatic change in your credit utilization ratio would almost certainly hurt your score.
A simple solution: Use those cards
I would recommend you start using these cards for everyday purchases if you don’t want them to be closed due to inactivity.
- You don’t have to spend much; in fact, I recommend you never spend more than you can afford to pay back in full when the bill arrives.
- You should also stay well below your credit limit at all times to keep your credit utilization rate low.
- Use the cards for purchases you plan to make anyway, such as gas or groceries.
- Pay your balance in full each month to ensure you will never pay interest or find yourself in credit card debt again.
- You will get the added bonus of likely increasing your credit score because you will be paying your bill in full and on time every month.
Remember, those on-time payments are what count the most.
Take care of your credit!
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