Your credit score is one of the most important numbers you will ever have in your life. It is like your old GPA (grade point average) from school, except for your money. Banks, credit card companies, lenders, employers, and landlords can use your credit history to decide if you get a new account, loan, apartment, or even a job. At the same time, it can save you tens of thousands of dollars on a mortgage loan. Here is everything you need to build an excellent credit score, and how you can understand and use it.[Read more…] about Credit Scores: The Complete Beginner Guide
About two years ago, a bank closed one of my credit cards due to “inactivity.” Unfortunately, even though credit markets are loosening, it takes more than just good credit to keep your accounts alive.
I have four credit cards. Two old cards that generally sit in a drawer getting dusty, my primary card, a cash back Visa that I use for all of my purchases, and a new miles rewards card that I signed up for as part of a travel hack.
Why to Keep Old Credit Accounts
When I was young and ignorant, I closed my first credit card account because I never used it. BAD DECISION. One of the most important factors in your credit score is the average age of credit. By closing my oldest account, I was bringing down the average age.
When the bank closed my card for inactivity, it had a double whammy on my credit. First, my average age went down. Second, my credit utilization, another important metric, went up. The card had a $10,000 limit, so when it closed my total percent of credit used increased.
How to Keep Your Accounts Alive
First, and most importantly, keep a positive record in your credit report. If you miss payments, make late payments, or have a negative item placed on your credit report, banks are legally allowed to close your credit card accounts. This has to be done in accordance with Regulation B, often called Reg B or the Equal Credit Opportunity Act.
Second, also important, is to use the accounts occasionally. In my banking days, we ran a list once every quarter for customers with a major negative change in their credit and a list of inactive accounts. If there were names on both lists, we would close them immediately. We would go through the rest one by one and decide who to close down.
I have been one of those accounts, but I will not be again and you don’t have to be either.
This morning, I dusted off my two rarely used cards and will use them for a few transactions just to keep myself off of the inactive list. Those two accounts are my oldest credit accounts, and having one closed down would dramatically impact my credit score.
What Are You Waiting For?
If you have old accounts that are unused, it is time to dig the card out of the drawer and make a few purchases. Of course, pay them off right away so you don’t forget, make a late payment, or pay interest in your purchases.