Posted by admin on Jan 06, 2010
The hottest news off the presses in regard to credit card use is that if you don’t use it you run the risk of losing it. That’s because many major credit card companies have changed their policies about those people who are cardholders but do not use their cards very much. While experts used to recommend keeping cards instead of cutting them up and canceling the accounts – but not using them – as a strategy to build better credit, they have changed their advice. Now they are warning that people who have cards that are not actively used may incur an “inactivity charge.” In other words if you have a card that you have not used for years, your card company may decide to hit you with a penalty.
The reason that people often hold on to cards they do not use – or keep dormant accounts open and inactive – is that FICO, the biggest credit score company on the planet, views open lines of credit that are not used as a plus. In other words if lots of banks or credit card companies are offering you credit but you are choosing not to take advantage of it and to instead just pay your bills each month without borrowing or carrying an outstanding balance, FICO rewards you with a better rating.
But apparently credit card companies see the situation differently. Many of them have been losing money since the recession began, because the average consumer has wised up about the smart use of credit and the benefits of sticking to a prudent budget. Less credit card use – and less borrowing – means lower revenues for card companies. To inspire you to pick up that plastic and go out and spend, they came up with this inactivity charge idea.
Of course that leaves each cardholder who has an active credit card account somewhere with a choice to make. Do you avoid paying inactivity charges, or hold on to your dormant cards in order to win more favorable ratings with FICO? In most cases the answer is that you should dump any card that charges you for superfluous things like “inactivity” and give your business to those card companies that are more reasonable. The exception might be if you are getting ready to buy a house and are strategically trying to boost your credit score by any means possible. In that case you might pay the inactivity fee, enjoy the higher FICO score, and then after you get your mortgage acceptance you can then close down the dormant account.