Credit Card: Use it or Lose it

Take a look at all of your credit cards. Chances are, you use one card more than the others. But is there a card that you don't use at all? If so, you may be at risk of having that card deactivated for inactivity.

Since the start of the credit contraction, many people have found their credit card limits slashed overnight. Lenders consider large open credit lines too much of a risk. If you don't use your card very often, the issuer may cut the credit limit significantly, or cancel the card altogether. This may not seem like a big deal, but it can reflect negatively on your credit report. Your credit score depends on many factors including how much of your maximum credit line you're using. If the credit line shrinks, you may find yourself using a much higher proportion of it. This can lower your credit score.

If you're currently running a balance on a credit card, but not using it for new purchases, you may suddenly find yourself maxed out without any warning. If you have reward points with a credit card that you're not using, you may lose them when the card is deactivated.

The tempting thing to do is to cancel the cards that you're not using. But before you rush out and do that, you should know that this, too, may hurt your credit score. Another factor that goes into determining your creditworthiness is the length of your credit history. If you cancel your old cards, your credit history will suddenly become much shorter. To prevent this, keep your oldest credit card and use it once in a while to keep that account active. Set up an automatic money from your checking account to make sure you pay off that card every month in full to maintain your credit history.