Have you ever had a credit card canceled, not for non-payment or going over your limit, but because you didn’t use the card? It can happen, and, in recent years, it’s been happening more and more.

While the Credit CARD Act of 2009 passed legislation that limited what credit card companies can do to consumers, creditors still have a fair amount of control over your account. This means credit card companies can close your account for non-use and lower your credit limit if you never approach the upper limit. That’s the bad news.

The good news is, they rarely do it without first offering you significant incentives to keep, and use, their card.

For instance, we recently got a warning from Home Depot that our credit card, opened in 2008 to buy a washer/dryer when our first daughter was born, would be closed for non-use if we didn’t use the card within the next two months. If we did, however, we could keep it open and get 0 % financing for a full 18 months.

We were able to make a home improvement purchase we’d been putting off for some time, and budgeted to pay it off within six months, paying just $100 a month. (In reality, I made a few lump sum payments and have just $80 left to pay off the card.) This didn’t bring the card close to 25% of its available credit, and it didn’t hurt our monthly budget, either.

How and When Will Creditors Cancel Your Card?

It took three years before Home Depot threatened to close our account. There’s no rule, but if you’ve never carried a high balance on a card and haven’t used the card in years, there’s a good chance it will be canceled. The creditors are not making any money on your account.

But you don’t want to use cards you don’t really need just to keep them from getting cancelled, because each time you have a new bill to pay, there’s a risk you’ll forget to make a payment, which will really hurt your credit score. What’s the solution?

How and When to Cancel Your Own Credit Cards

Some experts will tell you “never” cancel credit cards because it will hurt your FICO credit score. It’s true that closing accounts could lower your credit score in a number of ways:

  • You’re reducing the amount of available credit
  • You could increaase your credit-to-debt ratio, a figure that accounts for as much as 30 % of your credit score
  • You’re reducing your total number of accounts
  • If you cancel your oldest card, you could be reducing the length of your credit history
  • With time, that card will disappear from your credit report, erasing a history of on-time payments

Not every factor will apply to every person but, rest assured, canceling a credit card will lower your credit score.

Still, if a card is going to be closed, wouldn’t you rather be the one in control of that? It may be time to sift through your wallet, decide which cards are worth saving, and make a plan to use them all in a rotation.

When NOT to Cancel a Credit Card

You don’t want to cancel a credit card if you plan to apply for a personal loan, car loan or a mortgage in the next 12 months or if you’re planning to change jobs or rent an apartment, because all of these activities require a good credit score, the higher the better. Here are some more “don’ts”:

  • Don’t cancel a credit card that’s carrying a balance, as your creditor may penalize you with a higher interest rate.
  • Don’t cancel a credit card you’ve had for more than 10 years, as this is valuable to your credit history. If you’re new to building your credit, keep your oldest card.
  • Don’t cancel a card with no balance and a high credit limit, as this will raise your credit utilization ratio and lower your credit score.

Canceling a Credit Card

If you have cards in your wallet that don’t meet the above criteria, it’s time to start thinning the herd. Begin with cards you’ve only had a short period of time, with relatively low credit limits.

For instance, let’s say you succumbed to the promise of 30% off your purchase one Saturday and applied for a store credit card. You were approved for a $1500 credit limit, used it for your purchase that day, paid it off, and it hasn’t seen the light of day since. That’s a good card to go. (Unless it is your only store credit card, then you should keep it for the “credit diversity” portion of your credit score.)

As you decide to begin canceling cards, close one card every six months or so, giving your credit score time to rebound. And, again, if you plan to apply for a loan, stop canceling cards until after the loan closes.

Check your credit report and credit score in two months to make sure the card was canceled, check for any inaccuracies in your report, and find out how badly your credit score was hurt.

Before You Cancel a Credit Card

Before you cancel a card, read the fine print to see what benefits and bonuses that card offers; it might be time to start taking advantage of it, instead. Also, before you use or cancel a card, keep an eye out for 0% interest offers that could make the card worth keeping. You might even call the company and see what they’ll offer you for hanging on to, and using, their card.

Managing credit is like a game and you have to stay one step ahead of the competition, your creditors.

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