Credit News and Advice

Got Open but Unused Credit Cards? Use Them or Lose Them

Do you have credit cards with $0 balances that you rarely use to make purchases? If so, your credit card issuer may simply cancel your account for inactivity. And even if you don’t use the card, that could hurt you. Here’s why, and what to do to keep your credit cards open.

Banks shutting down unused credit card accounts

Credit card issuers want you to use any credit cards they’ve issued you so they can earn revenue from interest and transaction fees. If you have a card open but do not use it, you’re not only unprofitable, you’re also risky.

Why?

Because you have a credit line–whatever it is–that you could tap at any time. Since you’re not using your card regularly (and making payments), the credit card company doesn’t know if you might just go charge $1,000 to your card and then skip town.

In today’s tumultuous economy and credit market, credit card companies want as little risk as possible. So they’ve been reducing people’s credit limits and, in many cases, canceling accounts that haven’t been used in six months, a year, or longer.

A closed credit card will hurt your credit

Your credit score is extremely sensitive to how much credit you have available relative to how much you have used (i.e., any outstanding balances). An unused credit card account helps your credit score because it increases your overall credit line and, if you never use it, doesn’t contribute to your outstanding balances.

When that account is closed, your total available credit goes down, and so will your credit score.

Keep your account open

To avoid creditors closing your unused credit card accounts, use each card you maintain at least once a month. Use the card to pay a recurring utility bill, for example. Then, pay the bill in full every time. The amount of the transaction doesn’t matter, but the recurring use will keep you off you creditor’s radar screen when they consider closing unused accounts.