Editorial Policy

Do Inactive Cards Affect Your Credit Scores?

Eva Norlyk Smith Ph.D.

January 28, 2013

QHi Eva,

I have an 8-year-old credit card that offers no rewards. I just got approved for a new card with a higher limit and cash-back rewards. I know the rule is to keep that old account open so that my credit doesn't get hurt. But do I have to keep it “active” by charging on it regularly? Or can I just let it sit there dormant? I want to do all my spending on the new rewards card if possible, because I want cash back. I have positive history associated with that old account because I always paid at least the minimum amount due on time all those eight years. I'm just wondering what exactly I need to do with that old card to keep the credit gods happy. — Laurie

ADear Laurie,

The best way to use credit cards is to follow the Goldilocks principle: Not too much, not too little, but just right.

The drawbacks of using credit cards too much are well known: High credit card balances are viewed as a sign that the person has to rely on credit to make ends meet, and that will hurt credit scores.Ask Eva

But while it may seem counterintuitive, not using a credit card at all can also punish your scores as well. In order for FICO to get a read on you and compute the scores that lenders use, you'll need to have open, active accounts with activity that gets reported regularly to the credit bureaus. In other words, if you don't have other forms of credit (like a mortgage or a car loan), letting your card go dormant could make you unscorable, even if your past credit history was stellar.

Now, that won't be a problem for you because you have a new card, and you're planning on using it.

Plus, the effect of having zero balances on a credit card is minor, compared to carrying high credit card balances. Credit utilization, or the debt-to-limit ratio as it is also known, accounts for a full 30 percent of FICO scores. Most experts recommend keeping card balances well below 30 percent of the credit limit, and ideally at 10 percent. That means, by keeping that old card open, its credit limit will continue to work in your favor because credit utilization is measured across all cards, in addition to each card individually.

By far the biggest danger of not using a credit card is indirect. Credit card issuers generally don't like to keep inactive credit cards in their portfolio, as it costs them money (they have to keep the credit line available to you) without earning them anything in return (financing charges and swipe fees). So if your card issuer decides that the account is inactive, it might stop sending reports on the card's activity to the credit reporting agencies, lower the credit limit or even close the account altogether.

In general, with only two credit cards (one of which is new), your credit file is already on the thin side. So it will behoove you well to keep that 8-year-old credit card working for you. Find ways to use that credit card occasionally, so it shows some activity. Using it every three to four months for a small purchase such as gas is sufficient for the card to be considered active.

Or, use a set-it-and-forget-it strategy. Charge one of your recurring monthly paymentsto the card, such as a Netflix subscription or other minor charge. Then set the card account up for automatic payment from a bank account, so you never have to hassle with paying the bill.

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