How Unused Credit Cards Can Hurt You

Most people own a credit card for "emergencies," (REAL emergencies, not the It's-Christmas-and-I-forgot-to-pick-up-a-present-for-my-dog variety). If you are responsible enough to only use this credit card for emergencies, good for you. As a bankruptcy attorney I love nothing more than getting to see my clients take advantage of the new beginning bankruptcy has given them. Seeing people behave responsibly with their money is always great. But if you aren't putting enough on that credit card, you may actually be hurting your credit score.

It all has has to do with how your score is calculated. A big chunk of what makes up your credit score is your debt to credit ratio (how much the balance on your card is compared with how much unused credit you have available). Having an unused card inflates the amount of unused credit you have.

Sounds like it would actually improve your score, right? Not so much. If you aren't using the card, your credit card company may charge you an inactivity fee (it differs from an "activity fee" in that it's the opposite, instead of being charged to use the card, you're charged for not using it). Worse, they may decide to close out the account if it has an inactive status. After all, keeping the account open costs them money whether or not you use it.

Now, if your account is closed, your available credit will decrease, the amount of debt you have will stay the same though. So your ratio changes, and credit score decreases as a result. Recently, lenders have become eager to cut their losses, this means the liklihood of them closing your unused accounts have increased.

So you don't want to just let the card sit, because you'll be charged inactivity fees and risk having your account closed, but you also don't want to close it yourself at the risk of lowering your credit score. So, what do you do?

Easy, use the card. If you put a regular, recurring charge on it, then the card is used each month, saving you from being declared "inactive," (though you'll want to check the fine print on the card to see exactly what your company considers "inactivity," since for some it's zero while for others may consider a low balance inactive). Since it is your emergency card, be sure to put a bill that you would have to pay every month anyway on there, like your phone bill. Then just pay the card balance each month using whatever means you would normally have to pay that bill.

Debt is a stressful thing. I don't know anyone who has worried about how to put food on the table for fun. It's important to stay out of debt once you made a new life for yourself.

About the Author

James Brown is a personal bankruptcy attorney in St. Louis, Missouri. He has filed over 30,000 bankruptcy cases and published many books and articles. You can request his free Missouri and Illinois bankruptcy guide for the best tips on how to prepare for your bankruptcy and find a great bankruptcy attorney.

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