by Dana George | Updated July 30, 2021 - First published on July 25, 2021
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It's all about using your card just often enough to keep it active.
Last month we received a letter from one of our credit card companies advising us that it would close our account if we didn't charge anything to our card within 30 days. That card used to be one of our favorites for business travel. In recent years, we've shifted toward another credit card that we use for just about everything and pay off at the end of each month (we love those travel miles). It seemed the old credit card company was not taking our absence well.
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From what I've heard about others' experiences, our credit card company was gentle with us. A card company is not required to let customers know before it closes an account due to inactivity. My husband used the card for a $6 purchase at the Dallas airport and we live to charge another day -- but it made me wonder why a company would close a long-held account.
The reason is cost. An inactive credit card can cost a bank up to $100 per year, since it has to maintain the same infrastructure and support whether or not every card gets used. It's been a while since we paid any interest on that card, or since the bank earned fees from retailers when we pulled out the card at the register. In short, the issuer was paying for a card that earned it zero dollars. I can't say that I blame the company for threatening to close the account.
While the cancellation of an unused credit card may not seem like a big deal, it can do a number on your credit score. Some 30% of your credit score is based on "credit utilization" (how much of your available credit you use). Lenders love knowing that you have a lot of credit available, but are hesitant about how much of that credit you use.
Imagine that you have three credit cards, each with a $5,000 credit limit. You owe $4,000 on one but nothing on the other two. That's a credit utilization just shy of 27% ($4,000 ÷ $15,000 = 0.266). A credit utilization of 27% is not bad, given the rule of thumb that you should keep it under 30%.
If one of those credit cards is closed, that means you have $10,000 in total available credit instead of $15,000. That changes your utilization percentage. Now, instead of 27%, you're utilizing 40% of your available credit ($4,000 ÷ $10,000 = 0.4).
So if you don't use your card and it's closed, your credit usually takes a hit.
Here are some steps you can take to head off any credit card closures before they happen.
If you have a spare hour or so, give each of your credit card issuers a call and ask what their time frame is for closing an account due to inactivity. For one company it may be six months, and for another it could be a year. Knowing how long you have until they get antsy gives you a better idea of how often you need to use the card.
Make a list of your credit cards. Every few months, use each card to make at least one small purchase. Pay that purchase off as soon as it posts to your account. The trick is to be super organized so that no credit card charges fall through the cracks. Set a reminder on your phone for 48 hours after you've made a purchase, or write it in red on your calendar. Do whatever you have to do to remind yourself to pay the card off in full. It may help to use all your cards on the same day and pay them off at the same time.
Another way to keep cards active is to assign a fixed monthly bill to each credit card, and set it up on autopay. For example, several of our bills are the same every month, so it would be easy to set one card up as the payment method for a streaming service, another card for life insurance, and another for a regular charitable donation. Then, it's just a matter of going into our online bank account and setting up autopay to pay those credit cards each month.
Adding one more task to a full schedule probably sounds about as fun as a root canal. Still, if it keeps your cards open and boosts your credit score, it is likely worth the trouble.
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