Thursday, December 15, 2005

How Does Not Using a Credit Card Affect Your Credit Score?

How Does Not Using a Credit Card Affect Your Credit Score?

The way you manage your credit card accounts has a large impact on your credit score. It's not just the payments to your account that affect your credit score, though. Your credit score is based on several factors about your accounts.

Keep Balances Low

    By not using your credit cards, you can lower your credit card balances over time. This helps your credit score by raising the available balance. The percentages of your credit balances in use are called "utilization," and you want your utilization to be low. The formula that comes up with your credit score compares your current balances with the card's credit limit, so a low balance with a high credit limit is best.

Keep Accounts Open

    The problem with not using a card is that after a while, the credit card company will close your account, and you will lose that balance-to-credit-limit ratio. This will actually lower your credit score.

Compromise

    You can keep your accounts open and your balances low, therefore keeping your credit score high, by making small purchases on your account every few months and paying the balance as soon as you receive your bill.

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