If you have an older or high-limit credit card that you don’t carry a balance on, you run the risk of having it cancelled by the issuer, most likely without warning. Unfortunately, losing that card will damage your FICO score by reducing your utilization ratio and shortening your credit history. Even if you prefer not to use credit, it’s important that you keep an older credit card active if you ever plan to apply for a mortgage, car loan, or other forms of credit. Fortunately, you can do that without carrying a balance.
More Banks Closing Credit Cards
Some people have their cards cancelled or the limits drastically reduced without warning, others see their rates jacked up on somewhat questionable grounds. If you don’t carry a balance, than the latter isn’t a problem, but the former is.
Banks are doing this because they’ve finally figured out that more outstanding credit=more risk of default. So they’re moving to limit their losses with customers who are either at risk or default or who don’t earn the bank much money. They’re also moving to make more money before the new credit card rules kick in. If you don’t use your card or carry a balance, you could be in danger.
How to Keep Your Credit Cards Active
I use one card for almost all of my purchases because, at least until recently, it had a very generous rewards program. However, using one card for nearly all of my purchases made most of the other cards inactive, so I’m taking steps to keep them active.
Make Irregular, Small Purchases
Every so often, use the card for groceries, gas, or other small purchases. Just don’t forget to pay the bill. Fortunately, most cards now have email reminders when your statement is available. If you tend to forget it, schedule the payment on the spot.
Set Up an Automatic Payment
If you have a monthly recurring bill like your cell phone, newspaper subscription, or cable bill, send it to that card rather than your primary card. That regular charge will keep the card active.
Make a Big Purchase
If you have a big purchase scheduled, for example a new fridge, and you don’t plan to buy it on a rewards card, consider charging the purchase to a rarely used card. You may want to prime it with some smaller charges first to avoid security flags. Once again, make sure you pay it off at the end of the month. You don’t need to carry a balance to improve your credit score.
Rotate Your Cards
Before I had a rewards card, I would rotate my card usage. I knew which dates the bills closed (they weren’t all at the end of the month) and would use that card from the day after closing to the closing date of the next card, then switch. Not only did it keep them both active, but it let me keep my money in my checking account a little longer.
Personally, I worry less about active credit cards for department stores or retail outlets. Most of those cards have fairly low limits and seem content to keep my card active so they can send me product announcements and offers. However, if you have any large retail cards, consider using them at least once a year to keep them active.