If you have credit cards that you haven't used in years, you may one day find that your account is closed due to inactivity. Having an account closed by a creditor can be a nuisance if you are in the process of building your credit. When your store card is canceled, this can result in positive and negative impacts on your credit.
Positive Impacts
Your credit score is determined by five major factors: payment history, amounts owed, length of credit history, types of credit and new credit. When a creditor closes your card due to inactivity, your card is generally open over an extended period of time. The length of your credit history helps your credit score each month. Also, credit scores are positively impacted when consumers have a high amount of available credit. This is due to the influence on your credit utilization ratio.
Credit Utilization Ratio
Your credit utilization ratio is the amount of credit you have available versus the amount of debt you owe. With cards open with no activity, you usually have more credit available to you, causing your score to increase. Once a store closes your credit card, your credit score decreases because your credit utilization ratio has increased. Typically, your credit utilization ratio should be less than 30 percent. You can determine your new credit utilization ratio using the total amount of credit you have available after your account closes and the amount of debt you owe on all your credit cards.
Good Standing
Not all accounts closed due to inactivity have zero balances. Accounts with an existing balance may become bad debt once the account is closed by the creditor. If your account is closed by a creditor while it is in bad standing, the account will be negatively reflected on your credit report. If there is a remaining balance on your account, it may be sent to a collections agency. Pay any collections debt promptly to avoid an influx of calls from collections agents.
Responsible Credit Use
Creditors seek borrowers who demonstrate the responsible use of credit. This means repaying debt over a short period of time and avoiding maxing out your credit card. Ironically, not using your card is not a sign of responsible credit use. Not charging your card makes it difficult for a credit card company to judge how you handle debt payments. Charging small amounts to your credit card and repaying the debt in a small amount of time can help build your credit score.
0 comments:
Post a Comment