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You’ve probably heard that opening a credit card is a crucial step in building a strong credit score. Once you have the card, it is common knowledge how exactly you should be using that card.
It may seem logical that you would take advantage of opening a credit card and then leaving the account alone. Debt isn’t a good thing, is it? Well not exactly.
According to CreditCards.com, An unused card can affect your creditworthiness.
In this article, we’ll look at what happens when you aren’t using your credit card and some responsible card ownership tips that will have the best possible impact on your credit score.
But aren’t all the experts telling you not to use your cards anymore?
When you have a balance on your credit cards month-to-month, you earn interest on that balance with accrued interest, so all of your purchases will cost more in the long run and you run the risk of hurting your creditworthiness.
Using a credit card to pay off the balance immediately seems like an additional, unnecessary step that can easily be avoided if you simply choose not to use the credit card at all.
Since most credit card companies actually want you to charge you interest expenses, they don’t work too hard to educate consumers about responsible card ownership. How exactly should you use this card?
If you want to achieve good credit, you have to use your credit card in a very specific way. That means you have to actually use the card. Leaving your credit card can create a domino effect of catastrophic events that ultimately affects your creditworthiness.
How often you use the card, how much you charge it, and how often you cash out your balance can all have a huge impact on this important credit score.
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How Does Your Credit Card Affect Your Credit Score?
According to ExperianYour credit card affects several factors that play a role in determining your creditworthiness. The most important of these, however, is your credit card’s contribution to a category called “Loan Use”.
Loan utilization measures the amount of money you owe compared to the amount of money you have access to.
To calculate your credit utilization, divide the balance of all your credit cards by the total available credit limit and multiply it by 100. Example:
If you have a credit card with a $ 5,000 limit and you have $ 2,000 in balance on that card, your credit utilization would be $ 2,000 / $ 5,000 = 0.4 * 100 = 40%
Aside from credit use, your credit card can also improve or degrade other factors that affect your credit score.
How is Your Credit Score Calculated?
Your creditworthiness is calculated by combining data from your finances to produce a final overall metric. Each credit bureau has a slightly different calculation so you could very well end up with more than one credit score.
MyFico reports that your FICO credit score is based on:
- 35% payment history
- 30% credit utilization
- 15% credit age
- 10% credit mix
- 10% on credit requests.
Your credit card issuer contacts the agencies at different times and frequencies. The values that determine your credit score are the exact values on your card on the day the report is sent to the credit bureaus.
This means that even if you cash out your balance every month and your credit card company reports to one of the major credit scoring institutes before processing your payment, you may end up with a score that does not reflect reality.
The Impact of Loan Use on Your Credit Score
If your score can be updated at any time and not using your card is not an ideal solution, then how much credit use is ideal?
NerdWallet interviewed Rod Griffin, the Public Education Director at Experian and exposed the fact that there doesn’t seem to be an ideal loan utilization. If you look for advice on the internet you will find a general number: 30%.
However, if you go a little deeper, you will find that consumers with the best credit scores (800 and above) only get a credit usage score of 7% on average.
If your goal is to maximize your credit score, then it stands to reason that you can learn something from the people who seem to be getting things right. Keep your credit utilization below 10% and you are in a very savvy company.
Low or nonexistent credit can make it very difficult to buy a car, get a loan, or even secure an apartment. If you’re just getting started, check out these nine pieces of advice how to get an apartment with no credit history.
This happens when you are not using your credit card
If getting a lower score is a boon to the calculation of your credit score, it seems like a bad thing not to intuitively turn off the use of your credit.
Unfortunately, if you don’t use your credit card, you won’t get a 0% score. Most likely there will be no score at all.
What if you don’t use your credit card? The short answer is: nothing good. Your card issuer will likely stop sending reports to the credit bureaus, removing that card from your credit mix, credit load, and payment history factor.
Worse, your credit card company will eventually close your account, causing a significant drop in your credit score.
Almost every factor that goes into calculating your score will suffer a decline, and there is not much you can do in the short term to recover from that decline.
If your credit card company closes your account, you will likely not receive a warning or notification letting you know of the decision.
How can you track your credit card usage?
Use a third-party management platform such as To match to see all of your account details in one place.
Tally is an automated debt manager that can remind you to use your card regularly and help you pay off the remaining balance on your card as soon as you get it.
Apps like these help you manage your creditworthiness and debt so that you always know what to expect from your creditworthiness.
Speaking of apps, check out ours Top 10 Best Apps to Manage Your Personal Budget. When you use Tally in combination with a budgeting app, paying your bills on time and increasing your credit score becomes a breeze.
Should you close an unused credit card?
If you don’t use your card, you risk a closed account, a year-long credit dock, and no access to an emergency line of credit. Therefore, it is best to keep your card active through occasional use.
However, if you don’t use the card at all, should you close the account yourself before the credit company does this for you?
The reality is that it will be difficult to close a credit card and not suffer a credit degradation.
Bank rate makes an argument why it is mostly better to keep your credit cards open. Very often, the penalties that affect your creditworthiness are not worth closing a card.
However, if your card has high annual fees, you might be ready to take the hit to save yourself some cash, but be careful with your choice.
According to Lexington Law“Most negative items will remain on your report for a maximum of seven years due to the provisions of the Fair Credit Reporting Act. Bankruptcy, on the other hand, can last up to 10 years or more in some cases. “
How To Use Your Credit Card To Improve Your Credit Score
What should you do to build a healthy credit score when you cannot close the account and have no funds in the account?
1. Don’t carry debts on your credit card.
Get in the habit of making a purchase and paying off the card after each purchase to reduce the risk of your card issuer reporting a balance to the credit bureaus.
2. Keep your credit utilization below 10%
Based on the top rated consumers, a lower credit load is better. Functionally, this means that you shouldn’t spend more than 10% of your credit limit.
3. Use your credit card regularly
Use your card enough times to keep your account active. A great way to do this is to take some monthly expenses – like your cell phone or cable bill – straight to your credit card and then pay off the purchases immediately.
You can automate billing to both your utility and your credit card company.
4. Apply for a new credit card only if you absolutely need it
Prevent credit inquiries from dissolving your score and reduce the risk of increasing your access to credit by keeping your open credit card accounts to a minimum.
5. Do not close unused cards
Use the cards you have responsibly and use them for minimal purchases instead of closing them.
So what if you don’t use your credit card?
Ultimately, if you don’t use your credit card, you run the risk of causing catastrophic events that affect your creditworthiness and prevent you from getting approved for a mortgage, business loan, or even jobs.
Use the cards you have regularly and responsibly to maintain and build your credit score. Managing your accounts sounds harder than it actually is, and there are apps that make it a breeze.
If you’re looking to cut down on your credit card usage to reduce debt, check out these 67 handy tips how to save money fast so that you can pay off your debts quickly.