Unused Credit Cards Can Actually Hurt Your Credit Score

Most people keep around a credit card for "emergencies," (and I mean REAL emergencies, not the Christmas-is-coming-and-I-forgot-to-pick-up-something-for-the-neighbors-daughter-who's-in-town variety). And if you manage to use your credit card only for emergencies, then good for you. I mean it. As a bankruptcy attorney, I love nothing more than when I get to see my clients fully take advantage of the fresh start bankruptcy gives them so seeing people behave responsibly with their money is always great. But if you're only using that card for emergencies, be careful, having unused credit cards can actually hurt your credit score.

It all has to do with the way your score is calculated. A large portion of what makes up your credit score is your debt to credit ratio (how much the balance on your card is compared to how much credit you have available). Having that unused card inflates the amount of unused credit you have.

It sounds like it'd actually improve your credit score, doesn't it? Not so much. If you aren't using the card, your credit card company may charge you an inactivity fee (it differs from an "activity fee" in that it's the opposite, instead of being charged to use the card, you're charged for not using it). Worse, they may close the account due to its inactive status. After all, keeping the account open costs them money whether or not you use it.

Now, if your account is closed, your available credit will decrease, the amount of debt you have will stay the same though. So your ratio changes, and credit score decreases as a result. Recently, lenders have become eager to cut their losses, so the likelihood of them closing those unused accounts increases.

So you don't want to just let the card sit, because you'll be charged inactivity fees and risk having your account closed, but you also don't want to close it yourself at the risk of lowering your credit score. So, what do you do?

Easy, use the card. If you put a regular, recurring charge on it, then the card is used each month, saving you from being declared "inactive," (though you'll want to check the fine print on the card to see exactly what your company considers "inactivity," since for some it's zero while for others may consider a low balance inactive). Since it is your emergency card, be sure to put a bill that you would have to pay every month anyway on there, like your phone bill. Then, simply pay the card balance each month using whatever means you would normally have to pay that bill.

Debt can be stressful, I can't think of anyone who has worried about how to put food on the table for fun. Once you've made a new life for yourself, it's important to stay out of debt.


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James Brown is a personal bankruptcy attorney in St. Louis, Missouri. He has filed over 30,000 bankruptcy cases and published many books and articles. You can request his free Missouri and Illinois bankruptcy guide for the best tips on how to prepare for your bankruptcy and find a great bankruptcy attorney.