Credit Card Holders Beware ??Use it or Lose it

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Credit Card Holders Beware ??Use it or Lose it
2 years ago
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Credit cards can be a great tool for those who pay off their balances in full each month. These highly useful pieces of plastic can also be the source of all sorts of freebies, including airline tickets, gift cards and even cash rebates. For that reason many savvy consumers make a habit of signing up for credit cards to take advantage of these free offers. In many cases those cards sit in a drawer gathering dust after the initial freebies have been accumulated and used, and the credit lines they represent have gone largely untapped.

The banks which issue those credit cards have begun to take notice, and they have also started taking steps to reduce the risks associated with all that untapped credit. The bad news for consumers is that many credit card issuers have started to cancel inactive cards, often without any advance warning.

For debt free consumers who truly signed up just for the freebies the impact is typically quite minimal, but for those who carry a balance on other cards the effects can be quite severe. That is because the ratio of debt to outstanding credit plays a big role in the consumer's credit score. Any reduction in the amount of outstanding credit automatically raises this debt ratio, and that rise could shave dozens of points off the individual's credit score.

For this reason consumers may want to start going through their unused credit cards and deciding whether or not it makes sense to keep them open. If the consumer decides to keep the card it is important to start using it at least occasionally. The criteria banks use to classify accounts as inactive varies from issuer to issuer, but the range is typically between one and two years. Cards that have not seen activity for at least a year may be at risk of closure, and consumers who want to retain those credit lines may need to take action. Often simply calling the credit card issuer will be enough. In other cases it may be necessary to start using the card on a regular basis. Either way it is important for consumers to be aware that these actions are taking place, and to take the steps necessary to protect themselves and their credit scores.

by Beconrad
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