You may think that the unused credit card sitting in your wallet is harmless. But if you’re not careful, that card could cause significant harm to your credit score.
Was your credit card spending once out of control? If so, you may have paid off a card to reduce your debt. Or you may have stopped using cards altogether to stop racking up new debt.
While both moves are commendable, here’s how they can backfire: If you don’t use credit cards for a particular time, the issuer can close them. Why is that bad? Because closed cards can negatively impact your credit score.
The Importance Of A High Credit Score
Some people ignore their credit score completely because they’re too scared to see what it is or don’t think it’ll impact their lives. While it’s understandable that you may not want to see a low credit score, you should check yours anyway. It won’t cost you a thing either since you’re entitled to a free annual credit report.
As for not thinking a credit score will impact your life, think again. Here’s what a low credit score can do:
- Getting a loan to buy a home or car might be impossible.
- Renting an apartment could be an issue.
- Insurance could be more expensive.
- Employers may not want to hire you, as they could see a low credit score as a sign of a risky employee.
- Any new credit cards or loans will likely feature higher interest rates, making them more damaging to your bottom line.
- Even opening up a new Internet or utility account will be a hassle, as the companies will probably request a security deposit.
How A Closed Credit Card Can Impact Your Credit Score
Now that you see the importance of a high credit score, let’s discuss what an unused credit card can do to yours.
Credit card companies make money when people have open accounts that are actively being used. If you have an open account that isn’t being used, the credit card company loses. Therefore, to prevent such losses, companies look for inactive accounts and close them.
What makes a credit card account “inactive”? That’s all up to the issuer, as some go inactive after six months while others won’t hit inactivity until the two-year mark.
If you don’t know when your credit card accounts reach inactive status, contact your issuer. If you don’t, they could close an unused card, and that single closure could cause your credit score to plummet by 100 points.
Why such a huge drop? Because a huge chunk of your credit score depends on how much unused credit you have, how old the credit is, and the type of credit. So even when just one card closes, all of those factors are affected.
How To Keep Your Credit Cards From Closing
Since keeping track of a ton of credit cards can be tricky, here’s a simple move to keep yours open, so your credit score doesn’t take a hit:
- Think of a small monthly bill that you have, such as a Hulu or Amazon Prime subscription.
- Link that bill to the rarely-used credit card.
- Set up auto-pay.
By linking the small bill to that card with auto-pay, the credit card will remain active thanks to the monthly charge. But since the bill is so tiny, you won’t rack up tons of debt.