How Does Credit Card Inactivity Impact Your Credit Score?

How Does Credit Card Inactivity Impact Your Credit Score? Are you scared of using your credit card too much in fear that you’ll fall into debt? Do you only use it once in a great while to avoid hurting your credit score?

I used to fall into that category. Now I find myself on the opposite end of the spectrum. I use my credit card on nearly everything. Filling up my gas tank, eating out and buying tickets to sporting events are just a few of the many purchases I make with my credit card. It saves me the hassle of losing cash while giving me the added benefit of being able to track my spending. The majority of my spending takes place via plastic.

Using my credit card as much as I do does have its drawbacks. I mentioned that I have the option of keeping track of my spending (although I rarely do). More than once I’ve received my bill at the end of the month and hoped I was having a nightmare, although it was always reality.

Credit card spending can have its disadvantages if you don’t have self-control. It can also have its drawbacks for not using it enough, too.

Did you know that your credit card can be closed due to inactivity? That’s right. For people who prefer to use their cards only in emergency situations (that rarely, if ever come up), you might be doing more harm than good. Credit card issuers have the legal right to close your account when it believes it’s the best decision for the company. The time of inactivity could range anywhere from months to years, depending on the issuer.

By now, you’re probably wondering what the damage is to your credit score if your account is closed due to inactivity, right?

Before I dive into that, I’ll explain why it’s in the credit card issuer’s best interest to close an inactive account. It’s pretty simple. The card issuer would rather have someone who is going to make charges and gain interest than someone who isn’t. It’s a decision based on money.

When a card issuer decides to close your account, the part it damages the most of your credit score is your credit utilization. Credit utilization accounts for approximately 30 percent of your overall credit score. When an account gets closed, that credit limit is no longer considered part of your credit utilization. This means if you have balances on other credit cards, your utilization increases, which isn’t a good thing.

If you have $2,000 in credit card debt and a $4,000 limit, you have a utilization of 50 percent. If one of your accounts with a $1,000 limit gets closed, your credit utilization would increase to 67 percent. Ideally you want a utilization that’s close to 10 percent and nothing exceeding 30 percent.

See how that works? In the example above, the person already had a utilization well above the ideal number. After their account was closed, their utilization increased 17 percentage points.

So what does it take to avoid having your account closed? Not a whole lot. Before you go out and start putting hundreds of dollars of purchases on your credit card, think again. All you need to do is make a small charge on your credit card once every couple months and pay the balance in full when the bill comes. You could put $20 worth of gas in your tank or go out to eat and pay your bill with your credit card. It’s that simple!

Don’t let your credit card get canceled. All it takes is a purchase here and a purchase there every once in a while and you’re all set.

If you want to check your current credit score, be sure to check out Quizzle.

Have you ever had your credit card account closed due to inactivity? How did it impact your credit score? Let us know in the comments section below!

 

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