Many people don’t know how often they need to use their accounts to keep them active or what happens when they are closed due to inactivity. Find out now and help keep your credit score in check.
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There is more than one reason to keep your credit cards open and active.
It not only keeps that credit available for your use, but it also ensures your card issuer reports your activity to the credit bureaus.
You likely know that using your credit cards responsibly helps you build a solid credit score, but you might not know how often you need to use your cards so they won’t become inactive — or what happens when they do.
Keep reading to find out how a closed card might impact your overall credit and how and when to avoid having it closed.
Issuers need you to keep your cards active
Credit card issuers need their customers to use their lines of credit; otherwise, there’s little profitability because no interest is accruing.
If you really have no use for the card, they’d prefer to close your account and extend that same credit line to someone who will use it, according to Martin Lynch, compliance manager and director of education at Cambridge Credit Counseling.
Inactivity policies vary from one creditor to the next, but they’re necessary because card issuers have only so much money to lend.
“Most issuers allow 90 days of inactivity, but some go as far as two years. It’s really up to them,” Lynch said.
Make sure you contact your credit card issuer to find out how long of an inactivity period it allows before closing your account, said Igor Mitic, a financial advisor at the online personal finance website Fortunly.
“Call customer service or read through the card’s terms and conditions so you’ll know exactly how long a period of inactivity is allowed,” Mitic said.
Watch for warning letters about using your card
Before your bank shuts down your credit card for inactivity, you probably will receive multiple warning letters asking you to start using it, said Logan Allec, CPA and owner of the website Money Done Right.
If you don’t start using it, you’ll eventually get a letter in the mail letting you know your card is inactive, Allec said.
Depending on the issuer, an inactive credit card account can be subject to changes or closure, according to Simon Zhen, research analyst at MyBankTracker.
For example, the issuer might reduce your credit limit significantly to protect the lender’s risk because you have not displayed recent spending — or close the card entirely.
On the other hand, some issuers may make attempts to encourage credit card activity in the form of limited-time offers.
“For example, the issuer might reactivate a 0 percent APR period,” Zhen said.
Call your issuer if your card becomes inactive
Keep in mind that your bank doesn’t want to close your account, so it might just be as simple as calling and asking it to keep the card open, according to Allec.
“You might be surprised how flexible the bank is if you just ask,” he said.
But make sure to call right away so you don’t lose out on any rewards you accrued — if your card has been closed due to inactivity, you’ll need to be very active to get it back,” said Howard Dvorkin, CPA and chairman of the website Debt.com.
Closed accounts can negatively affect your credit
Your credit score is determined by five factors, but not all of them carry the same weight, Dvorkin noted.
So, imagine you had a card with a $5,000 credit limit and you seldom used it, so the bank closed it due to inactivity.
You just lost $5,000 of available credit, which may ding your credit utilization — and your score — depending on what balances you’re carrying on other cards.
In addition, the length of your credit history counts for 15 percent of your credit score, which means it’s better if you’ve had a credit card for a few years instead of a few months.
If you lose that card due to inactivity — or if you close an older account for any reason — you could shorten your length of credit history and ding your score, Lynch added.
That said, accounts in good standing stay on your credit report for 10 years, so you probably wouldn’t see any effect from this for a long time.
See related: Credit score effect of opening vs. closing cards
Keep your account active with a recurring payment
If you want to keep a card open but not use it a lot, the easiest way to do that is to have a recurring payment attached to it, according to Stephen Gunter, certified financial planner at the financial planning firm Bridgeworth.
“I do this personally — my first card, which I still have, has about $40 per month of recurring bills attached to it,” Gunter said.
This keeps Gunter’s card open and stretches out his credit history on credit reports.
“I also don’t carry that card on me, so I’m not even tempted to swipe it,” Gunter added.
If you have multiple cards you don’t use a lot, spread or rotate those subscriptions and utility bills among them — or even use your card at the grocery store once a month since you’re going to buy food anyway, Lynch said.
That way, you’ll fulfill the minimum-use policy without running up a significant balance.
The key is to pay off your account each month, Lynch said, on time and in full if possible.
“Contrary to popular belief, you don’t need to carry a balance from month to month,” he said.
Allec suggested something as simple as making just one purchase per month with a card to keep it active.
“One strategy that works quite well is to set a monthly reminder on your phone to use the card,” he said.
Even if you just buy a single pack of gum with the card each month, you’ll ensure it won’t be closed, he added.
Think carefully before you close an account
Because factors such as your total credit available and the amount of credit you’ve used have an important impact on your credit score, closing accounts can have a larger effect on your credit score than you might think.
If you want to close any of your accounts yourself instead of just not using them, be careful when deciding which accounts to close and which to leave open.
Always keep your oldest card open because the credit bureaus use that to figure out the overall length of your credit history, so closing it would have a significantly negative impact on your credit score.
Don’t close any cards that have a balance — instead, look into transferring the balance to another card with better terms before closing the accounts. (But keep in mind that balance transfers usually come with a fee of 3-5 percent of the transfer amount.)
And always keep some credit available to you, because you never know when you’ll need it.
If you really want to cancel a card, a good reason might be that it has a high annual fee and you’re simply not using it enough to justify paying it.