Planning to buy a house soon? Keep unused cards open

Instead of closing them, improve your credit score by using them wisely

The Credit Guy columnist Todd Ossenfort
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.

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Dear Credit Guy,
I have seven credit cards. I have spent the past year paying them off and now only one has a $5,000 balance with a $20,000 limit. The newest one was opened in 2015 with a $1,500 limit, which I have never used. The bank is going to close it if I don’t use it. Should I let them do it? My credit score is 740. I want to buy a house in a year. – Diane


Dear Diane,
In general, it is not a good idea to close any accounts, especially if you are planning to make any significant purchases in the near future. Buying a house in a year absolutely counts as a significant purchase and one that you will want to go into with your credit in the best possible shape.

Your problem seems to be that your bank wants you to use its card. You can understand this – credit cards generate revenue and if you aren’t using their product, they want to move on. I don’t know how much difference $1,500 will make to your overall available credit, but if you allow the account to be closed, you will lose that amount right away. This could very easily affect your score negatively, at least in the short term, as it will increase your credit utilization ratio and might, in turn, affect your ability to get the very best terms for a mortgage. Credit utilization is one factor in credit scoring.

There is a very simple answer to this problem: Start using the card. However, you will need to use it in a way that will not hurt your credit score but will instead help it to increase:

  • Use the card for small expenses you have already planned for in your monthly spending plan. Examples of these expenses are gas, groceries, and medications. These are necessities that you will buy anyway.
  • Keep the spending level low, because the credit scoring formulas consider individual card credit utilization as well as overall credit utilization. With a $1,500 limit on your card, you should limit your spending to about $300 every month – or about 20 percent of your limit. There’s nothing magical about 20 percent, but it's a good rule of thumb.
  • When you get your monthly statement for the card, pay the balance in full and on time each month. This way you will never incur any interest and, more importantly, you will never have any debt from this card.

What to do with the rest of your cards
I also want to address the other cards that you have paid off. You may face the same problem with those cards – the issues might want to close them, too, if you don’t use them. You can apply the same strategy with those cards.

  • Use the cards for some expenses, never for more than you can pay off completely when the bill comes. The bonus here is that your credit score will reflect the responsible use of your credit cards and will slowly begin to rise.
  • You should continue to chip away at your $5,000 debt from your one card with a balance and refrain from taking on additional debt during this time.

I want you to know that this strategy will require some attention and discipline. The changes to your score may seem small at first, but they will add up over time. This should put you in a great position when the time comes to apply for a mortgage.

Take care of your credit!

See related: Don’t be hasty in closing unused account with $0 balance, 5 steps to a mortgage-worthy credit profile


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Updated: 03-23-2019