Why You Should Show Activity on Old Credit Cards

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As time goes on, our credit card habits tend to change. We may find ourselves focusing on travel purchases with a flexible credit card. Then a few years later, we may change to a premium co-brand travel card. Or, perhaps your very first credit card has the longest history, but it doesn’t earn any rewards, so it collects dust.

No matter which credit cards you have in your wallet, it’s important to avoid inactivity cancelations on your oldest accounts where you can. This can be easily remedied by making small purchases a couple of times a year. Plus, it can help your credit score in the process. Here are several reasons why you should pay attention to your credit card accounts.

Why Do Credit Card Cancellations Happen?

It’s no surprise to learn that if you don’t touch a credit card for an extended period of time, it might be unexpectedly canceled on you. After all, if you needed the card you would use it. Since you don’t – and haven’t in quite some time – the creditor chooses to close out the account and extend that line of credit to someone else (who will hopefully tack up charges and pay them plenty in interest).

It’s a smart business move, after all. Even still, it’s something you want to avoid if you can.

The amount of time that a creditor will allow a card to remain inactive before canceling the account varies. For some, it takes years and years of empty statements for them to finally give up on you. Others take a more proactive approach, only waiting months before cutting their losses.

No matter how perfect your history was with the card or how short of a time you allowed it to be inactive, a cancellation will have an impact on your credit score.

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How Your Old Credit Card Account Can Ding Your Credit

There are two areas of your credit score where a canceled account will negatively impact you, both in the short- and long term. One of them is with your credit utilization, and the other is when calculating your average age of accounts.

Credit Utilization

Your credit utilization is the amount of debt you hold compared to the credit that you’ve been extended. Ideally, you want to keep this number below 10%, and anything over 30% needs attention.

If you have a credit card just sitting around unused, its limit is still playing into your overall credit utilization. Let’s say that you have two credit cards. One is unused with a $2,000 limit, the other has a $3,000 limit and a $1,500 balance. Even though you don’t use the former card, it’s still factored in – you have an overall credit limit of $5,000.

Because you carry that $1,500 balance, your total credit utilization is 30 percent. If that unused card with the $2,000 limit is canceled, though, your total credit limit suddenly drops to $3,000… and your utilization shoots up to a whopping 50% overall.

This is why it’s important to keep even your unused credit cards open, especially if you hold balances on other revolving accounts.

Average Age of Accounts

A small part of your FICO credit score (thought to be about 10%) is comprised of your average age of accounts (AAoA). This gives potential creditors a good idea of your actual credit history – how long you’ve been positively managing lines of credit that were extended to you.

If you close a credit card or have an account canceled due to inactivity, that card stops reporting new activity to your credit report. Eventually, in a few years, it will fall off completely. This means that at some point, your overall average will stop including that card, which may drop the number substantially.

Example

Let’s say that your very first credit card is 25 years old. It’s no-frills, but you’ve had it since you first went to college. However, you stopped using it because you recently discovered the magic that is cash back rewards. You opened two new travel rewards cards this year, and the old card has been collecting dust.

One day, you learn that your first account has been canceled due to inactivity. It stays on your credit report for the next seven years, reaching a total account “age” of 32 years before eventually falling off.

The day before that account fell off your credit report, your average age of accounts was approximately 15.3 years. Once that card disappears, though (leaving only the two younger cards) your average AAoA drops to only seven years.

While this only plays a small part in your total FICO score, it does have an impact.

Avoiding Cancellations

If you want to avoid having a credit card account canceled due to inactivity, there’s a very simple solution—use the card once every six months.

Also, don’t forget to downgrade your annual fee credit card to a no annual fee credit card. This will keep your average age of account intact.

There’s no hard and fast rule regarding how long a company will let your account sit inactively. However, it’s unlikely that they will cancel a card after only a couple of months. Many wait until the 1-2 year mark, but you probably aren’t going to get a clear answer from them ahead of time.

A safe rule of thumb is to simply make a small charge using the card every six months. Then, immediately pay it off once your statement arrives. It doesn’t matter whether you buy a pack of gum, pay your utility bill, or buy a big screen with it. The point is to just show some activity on the account to avoid closure.

Summary

Closing an old credit card account – or having one canceled – can have negative impacts on your credit score, both immediately and down the line if it’s an old account. The best way to avoid both is to show regular activity by making a small charge every six months. Even if you never use the card otherwise, your credit score will thank you.