Did You Know | Not Using Credit Cards Can Affect Credit Scores | Read Here

If you cannot keep yourself away from splurging, giving a wide berth to your credit card (unless there is a pressing need) is quite understandable. However, one should desist from imposing a moratorium on using credit cards. Contrary to common perception, freezing your credit card, can affect your credit score badly. This may harm your prospects of procuring a loan in the long run.

When it comes to granting loans, a person’s upside borrowing limits count more than anything else. For this a credit card has to be active as well as on the right side of the credit line. With an inactive card, many believe, banks will have an equally favorable impression given the fact that the person has zero inclination to live on borrowed money. However this is a mistaken impression.

Card issuing companies make an earning only when people use their credit cards. After a stipulated period of time, they charge an interest on the debt, and thus channel out means to earn money. If people clear off their debts even before the interest period sets in, companies still earn money by charging swipe fee from merchants. When you do not use your card, the issuer has to bear the expenses of having you on their roll. It also adds to their marketing expenses, as companies have to provide attractive offers time to time to ensure customers put their card to use. If this fails, an issuer will bear the cost for a while before closing the account. And this mostly happens without notification as the law permits issuers to close credit card accounts due to inactivity. With a cancelled account, the approved but unused credit limits that helps to drive up a credit score disappears.

What can be more damaging is completely closing paid off accounts and working towards clearing debts owed towards other credit cards. With fewer accounts and less approved borrowings, the card users revolving utilization percentage gets pushed up. This affects credit score badly.

The simplest solution to this lies in using all cards every now and then so that all cards are kept active. Also, come what may one should always pay the balance before the interest rates come into play.

All said and done, closing credit card accounts should always be the last option. If a bad credit score can disappear in seven years, a good score record can also get easily blemished.

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I am working as Editor in Chief for Financeninvestments.com. Writing on Financial Topics is my passion. You can find me on , Seeking Alpha Instablogs or join our Facebook Community, s. FNI is a great Community for financial bloggers and writers. Get everything you wanted to know about your finance and investment related matters such as mutual funds, banking, retirement, economics and much more.

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