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TPG reader Jon sent me a message on Facebook to ask about managing his credit card portfolio:
“Will my credit score be affected if some of my 10+ credit cards go unused? Should I try to make purchases each month, or is it okay to have a continuous $0 balance?”
Your credit is a valuable tool, so it’s important to manage it responsibly. Cultivating and maintaining a high score can help you get in on the best credit card bonus offers, and it also improves your chances of getting a good rate on a mortgage or other loan. At a time when credit scores in the US are declining, I’m always happy to hear from readers like Jon who are mindful of how their credit card accounts may impact their finances. Fortunately, he doesn’t have much to worry about here.
One of the most important factors in your credit score is the credit utilization ratio (often referred to as the debt-to-credit ratio). This measures the existing balance on your cards relative to your total spending limit, and reporting agencies use it to assess how well you handle credit. Generally, a lower ratio is better because it indicates that you’re more able to repay debt; however, a ratio of zero (meaning you have no debt at all) may actually hurt your score, since it doesn’t demonstrate that you can use your credit responsibly.
Your credit utilization ratio is calculated across all your cards both individually and cumulatively. While a particularly high ratio on a single card could throw up a red flag, the cumulative utilization carries a bit more weight. That’s good news for anyone in Jon’s situation, because it means keeping a zero balance on some of your cards is less of an issue so long as you have a few that you use regularly. I have more than 20 credit card accounts, and there’s no way I use them all every month, but the ones I do use are enough to keep my utilization ratio in good shape.
That said, there is one way that maintaining a zero balance could hurt your score. Card issuers have been known to cancel cards after sustained inactivity, and if your account is closed, then you lose that portion of your total spending limit. That means your utilization ratio will go up, which isn’t ideal, and you could also lose any rewards you’ve earned that haven’t been redeemed yet. To avoid this, I recommend using each card at least once annually. Tools like the TPG To Go app can help you monitor spending to help you remember to swipe your lesser-used cards.
Keep in mind that your credit score fluctuates regularly based on your spending patterns. Even if having no balance (on any of your cards) does drop your score, the impact should be small and temporary. Once you begin spending again, you should regain any points you lost due to inactivity.
For more information on managing your credit cards and credit score, check out these posts:
- 5 Things to Understand About Credit Before Applying for Cards
- 5 Steps to Take Before Canceling a Credit Card
- Should I Be Concerned About a Credit Card Denial?
If you have any other questions, please tweet me @thepointsguy, message me on Facebook or send me an email at email@example.com. NEW INCREASED OFFER: 60,000 points! With great travel benefits, 2x points on travel & dining and a 60,000 point sign up bonus worth up to $1,200 in value, the Chase Sapphire Preferred is a great card for those looking to get into the points and miles game. Here are the top 5 reasons it should be in your wallet, or read our definitive review for more details.
NEW INCREASED OFFER: 60,000 points! With great travel benefits, 2x points on travel & dining and a 60,000 point sign up bonus worth up to $1,200 in value, the Chase Sapphire Preferred is a great card for those looking to get into the points and miles game. Here are the top 5 reasons it should be in your wallet, or read our definitive review for more details.
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