How Unused Credit Cards Effect You

There are a variety of reasons a person may have multiple credit cards accounts open. Some are attracted by the offers, low interest rates and even saving money by transferring balances onto a new, low APR credit card. Is it best to close the old accounts or keep them active? What effect will old accounts have on a persons credit score? While there are no exact answers to these questions, one can establish a well educated guess by learning a few simple financial factors. Understanding these three basic principles is a good first step towards deciding if you should keep specific credit card accounts open of close them.

1. Utilizations Rate - This is the amount of your total credit line that you currently have tied up. A low utilization rate is having 35% or more credit still available for use. Unused accounts that remain open help lower this rate. The trick is to keep the account open and not use up the available credit.

Example: Consider a person that has two credit cards. Each card has a $5,000 limit, making the total credit available to be $10,000. This person could max out one of the cards and still hold a quality utilization rate (50%). It’s because this person maintains a second, rarely used credit card, that they are able to maintain a good utilization rate. The one rarely used card in this case may work to raise this persons credit score, making the extra credit card a positive.

2. Credit History Length - How a person chooses to handle their finances can drastically move their credit score in one direction or the other. Chances are the person who has worked with credit longer will have learned a thing of two about money (credit) management. This assumption is the reason a persons’ credit score may increase the longer their credit history is, regardless of the number of credit cards the person has used.

Creditors consider two years as the minimum for the credit activity to be verifiable. This is why many recommend starting a credit line ASAP (Age of 18). This doesn’t have to be a huge loan or major credit card. A small line of credit is enough to get a persons credit history started.

Many individuals will have no choice but to start off with credit cards. This is due to the fact that most newbies will not have any collateral to secure a loan. Lenders like to know a person has assets they can go after in the event the borrower defaults on the loan. When using credit cards to develop credit history, it is best to create small balances that you can pay off each month. This will help to develop the positive credit history you will/ may need down the road.

3. Poor Money Management - Regardless of how long your credit history is, managing the credit you’ve been entrusted with badly, will stay on your credit for some time. If you have a messed up credit history, start cleaning it up immediately and begin adding positive marks as soon as possible. Once again, a basic way to begin adding positives to your credit history is to use a credit card for a small purchase once every six months and pay off the full amount. This will help to raise your credit score.

Stop Active Accounts from Being Canceled
In order to receive credit score benefits from credit cards, the cards must occasionally be used. Credit card providers will close accounts if they go too long without showing any activity. This is just one more reason to make small purchases every so often on those extra credit cards. Keeping the accounts active create positive factor on your credit score…as long as you don’t use up the credit.