Why you should use your rarely used cards — especially now
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Credit card issuers want you to use your cards. After all, a no-annual-fee credit card that sits unused in your sock drawer won’t produce any revenue for the financial institution.
On average, Americans are continuing to handle credit responsibly during the pandemic. But, some consumers are experiencing financial difficulties. And, it’s been difficult for banks to assess creditworthiness during the pandemic. So, to reduce risk, some banks are closing or reducing the credit limit on accounts that consumers aren’t actively using.
However, even if you don’t use some of your cards frequently, you may not want the issuer to close your account or reduce your credit line. Here’s why you may want to keep rarely used accounts open, as well as how to do so.
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Why banks close card accounts
Don’t be surprised if a credit card issuer closes a card that you keep tucked away in the far reaches of your wallet or your sock drawer. After all, issuers generally make money three ways:
- Interest payments: You’ll be charged interest when you carry a balance from month to month. You can avoid interest by paying off your balance in full each month.
- Fees charged to consumers: Fees such as annual fees, late fees, cash advance fees and balance transfer fees are generally avoidable but may be worth paying for the benefits and convenience some of those fees provide.
- Processing fees paid by merchants: When you use your credit card, the merchant pays a processing fee.
Issuers want cardholders that will allow them to make a profit through these fees. As such, issuers want to continue offering credit to cardholders who will use their card and not default on their payments.
But issuers also need to minimize the risk on cardholders who aren’t profitable, such as those who don’t use their card but have a high credit limit. Therefore, issuers may choose to decrease the credit line on underused accounts and completely close unused accounts.
Why you should try to keep card accounts open
When one of your card accounts is closed, your credit score will usually decrease. For example, when my mother-in-law closed her cobranded Southwest credit card earlier this year, her credit score dropped by about 20 points.
Once an account is closed, you’ll have less credit available to you. And, having less available credit hurts your credit utilization ratio. For example, if you have $3,000 of credit card debt and four cards each with a $5,000 credit limit, you are using $3,000 of $20,000. But if an issuer closes one of your cards, you are now using $3,000 of $15,000. In this case, your credit utilization ratio will jump despite your debt remaining the same.
Generally, you’ll want to keep your credit utilization ratio under 20% or 30%. Suppose an issuer closes your account or decreases your credit line. In that case, you’ll need to reduce your credit card debt or increase your credit limit to keep the same credit utilization ratio. You’ll either need to pay down debt on another account or ask one of your other issuers for an increase in your credit line. But, doing so will let you minimize the impact on your credit score.
Related: What is a good credit score?
Your credit score could also dip if the credit card that is closed is one of your oldest. One of the factors that make up your credit score is the length of your credit history. If your credit history’s average length falls because of a closed account, your credit score might decrease. So, it’s best to work extra hard to keep your oldest accounts open.
How to keep infrequently used card accounts open
There are many reasons you may not use a card frequently. But especially if the card may be useful in the future or is one of your oldest accounts, you likely want to keep the card active. Here are two behaviors that will help.
Spend on each card at least once a year
Generally, you should use an account at least once a year to keep your account active. My husband and I review our accounts about every six months and load $5 from each rarely used account onto my Amazon Gift Card balance. Doing so keeps the accounts active, and we use our Amazon balance to purchase gift cards and other products we need.
There are other ways to spend regularly on your cards. For example, you could set up at least one subscription service — such as Hulu, ESPN+ or Disney+ — on each of your cards. You could also designate each card for a specific category of spending such as gas, groceries, restaurants, travel purchases and charity donations. But, if you take this approach, be sure you align the cards with the categories in which they earn the most rewards.
Watch for closure notices
Some credit card issuers will notify cardholders about a card closure, while others will just do it. So, if you receive a notice that your card account will be — or has been — closed, you may be able to keep the card account open by calling and making your case.
For example, about a year ago I received a notice that my cobranded United Airlines credit card was being closed. I called the number on the back of my card and explained to the agent why I wanted to keep the card. I hadn’t used this card in the last year, but I said that I hoped my travel on United would soon increase, which would mean I’d be using my card more. The agent agreed to keep my account open, but I could have prevented this situation by using my card even just a few times each year.
Especially as the pandemic continues, it’s vital to recession-proof your credit score. One way to protect your credit score is to periodically spend on rarely used cards. After all, card issuers are less likely to close active accounts. And, you want to keep your card accounts open to maintain account history and credit utilization, especially on cards with high credit limits or long account history.
Additional reporting by Dan Rafter.
Featured photo by Isabelle Raphael/The Points Guy
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