In the light of todays economy many people are trying to cut back on their spending. And very often this will mean not using a particular credit card that is in their possession in the belief that they are helping themselves stay a little more financially sound.
But it seems that this belief can be causing more harm than good if the card that isn’t being used is one that you hang on to for those ‘just in case’ moments. While having a credit card for emergencies is a good idea, especially if it’s one that you don’t otherwise need, having an unused card might not be, as banks can sometimes cancel the card for you. And while a credit card that has a zero balance won’t affect your FICO score, closing an account could, regardless of whether you or your card issuer closed it.
Recent months have seen more lenders and card issuers becoming eager to close accounts while they attempt to protect their profits, because keeping an inactive account open actually costs them money. Another alternative is that the lender could start demanding that the card holder charges a certain amount to the card in order to keep the account open.
While the card account being closed might not matter to some card users, to others it can have disastrous consequences as their utilization rate, otherwise known as a ‘balance-to-limit ratio’, will increase as a result, which could quite possibly cause a temporary lowering in the borrowers credit score. For those who are in the market to apply for a loan or other finance agreement such as vehicle finance it is a very important consideration to take into account.
Using your emergency credit card, even if it’s just a small purchase every month such as a cell phone payment, could well prevent the issuer closing the account, and it could even help to improve your credit score at the same time. The money you would then normally pay that bill with can be used to pay off the credit card payment. By using your card in this way you are not taking on any additional debt, and are making sure that your card stays active to prevent your account being closed.
It is important to remember to pay your credit card bill in full and on time however, as keeping the account open is one thing, but maintaining a good credit history with it is another