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Ask Jean Thursday: To Use Or Not To Use?

I received a letter from my credit card issuer today stating that since I had not used my card for “an extended period of time” that they permanently closed my account. My goal in not using my cards was to improve my credit score. My question is since the issuer was the one that closed the account, will it reflect negatively on my credit report?

-Lori, New Jersey

It seems logical right? Don’t use your card, you won’t have a balance and you won’t have to worry about paying it off. Unfortunately however, that’s not the case. “Card issuers have been closing out millions of inactive accounts…they are doing this in order to limit their risk as they are facing mounting losses related to card members who are unable to make payments on their credit cards,” says CardRatings.com’s Curtis Arnold.

If you don’t use your credit card over about a six-month period, it may be considered inactive and your issuer may cancel your account. Unfortunately, this will impact your credit score. “Closing out an account that you haven’t used in a while on the surface may seem like a prudent thing to do, but doing so will likely adversely affect your credit score,” says Arnold.

The decreasing of your score has to do with a little something called your utilization ratio. Your utilization ratio compares the amount of credit you’re using to the total credit you have at your disposal. If you have a small amount of debt and a lot of available credit, you have a low utilization ratio—and that’s a good thing when it comes to your credit score. When your issuer closes your account due to inactivity, it decreases your available credit, therefore dinging your credit score.

How can you avoid this problem in the future? To keep the rest of your cards active, be sure to use each card once a month or so—even if it is for something you’d typically pay cash for, like a movie ticket or a coffee. “Keeping a monthly automatic charge on your card is also an easy way to keep your account active,” suggests Arnold.

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