Why You Should Keep Your Credit Cards Active
Keeping your cards active ensures you build long histories, which factors into your credit score.
Ellen B. Kennedy
Keeping your credit cards active, even by making one small, monthly purchase, might not seem important. If you're digging out of debt or struggling to keep your spending in check, minimizing credit card usage might be the best choice for your overall financial health.
Otherwise, consider putting any standard or rewards credit cards you haven’t used in a while into the rotation for making purchases.
The reason? If your credit card is inactive for a long period — anywhere from about six months to three years, says Ted Rossman, a principal analyst at Bankrate — the card issuer might close it or reduce your credit limit. That could hurt your credit score.
From just $107.88 $24.99 for Kiplinger Personal Finance
Become a smarter, better informed investor. Subscribe from just $107.88 $24.99, plus get up to 4 Special Issues
Sign up for Kiplinger’s Free Newsletters
Profit and prosper with the best of expert advice on investing, taxes, retirement, personal finance and more - straight to your e-mail.
Profit and prosper with the best of expert advice - straight to your e-mail.
What's the benefit of keeping active credit card accounts?
To achieve or maintain a good credit score, you need to monitor your credit-utilization ratio.
It’s calculated by dividing your credit card balances (the total amount you owe) by your card limits (both on individual cards and in the aggregate across all your accounts) and reflected as a percentage. Generally, the lower your utilization ratio, the better for your score, with the benchmark of using no more than 30% of your available credit limits.
One way to review your utilization is to use credit-monitoring services such as myFico. They notify you of any changes to your credit reports, such as shifts in balances, new accounts opened or credit inquiries.
If the available credit on one of your cards is reduced or disappears, the utilization ratio calculated across all your accounts could increase if you have balances on other credit cards. If your card issuer reduces your credit limit, Rossman suggests asking the issuer to restore it to the previous limit.
Making a small purchase with your credit card, even just once every few months, can help keep the account active. That might be a good strategy for a card that you’d rather not use often — say, because it offers rewards that are inferior to those your other cards provide.
An easy way to achieve this is to set up that credit card for everyday purchases, such as streaming, groceries or gas. Using it to charge items and paying them off before interest accrues shows lenders you're using your card responsibly. Not only will this keep your card active, but it can also improve your credit score over time.
My card is closed. What should I do?
The company that issued your credit card might not warn you before closing your card due to inactivity. Closing a credit card can harm your credit score, so you'll need to devise a strategy to get back on track.
Your priority should be boosting your credit score and establishing a system to monitor your cards and their payment due dates. Read more about what to do if your credit card is closed.
Another option is to reach out to the lender. Ask them why they closed the card and see if there are any steps to rectify the situation.
Ultimately, keeping your cards active, even for one small monthly purchase, shows lenders you're using your credit responsibly. Over time, this will build your credit score, putting you in a position to achieve your other financial goals.
Read More
