There are numerous factors that influence your credit score. One of these major factors is how you use your revolving credit accounts. In fact, your credit card usage directly affects your credit score. So much so that 30% of your credit score considers your credit utilization rate.
Simply put, the higher your credit utilization or the higher your credit card balance, the worse it is for your credit score. But what if you stop using your credit cards to avoid raising your credit utilization? Will this help your credit score?
In this article, we’ll be taking a look at what happens to your credit score when you stop using your credit cards.
What Is Credit Utilization?
Credit utilization refers to the percentage of the available credit you’re using at a given time. In other words, it’s how much credit card balance you have relative to your spending limit. For instance, if you have a $500 balance on a $1,000 credit card, your credit utilization is 50%.
You’ll generally want to keep your credit utilization rate under 30% at all times. This means keeping your credit card balances below $300 for every $1,000 spending limit. Simply because your credit score will begin to decline when you approach the 30% mark.
What Happens To Your Account When You Stop Using Your Credit Card?
When there’s a lack of activity on your revolving credit account for an extended period of time, it leads to credit card inactivity. When a credit card company deems your account to be inactive, they may cancel your credit card.
Granted, different credit card companies will have their own guidelines regarding credit card inactivity. However, if your credit card issuer does cancel your credit card, it may lower your credit score. Specifically, if it raises your credit utilization rate.
To explain, let’s assume you have two credit cards, each with a $1,000 spending limit. If one card has a $500 balance, your total credit utilization rate is 25%. However, if your credit card issuer cancels the other card due to inactivity, your credit utilization rate becomes 50%.
Is It Worth Not Using Your Credit Cards?
Unfortunately, whether it’s worth it to stop using your credit cards will depend on numerous different factors. One of these is whether it’s worth it to keep paying the credit card’s annual fees. Some credit cards have high annual fees, and may not make financial sense to keep open if you’re not using them.
With that said, it’s generally better to keep your credit cards active. Especially considering that your credit cards may come in handy during emergencies. Plus, using your credit cards responsibly is one of the best ways to improve your credit score.
If you really need to stop using a credit card, make sure you’ll do so while the account is in a positive state. Meaning, you have no outstanding balances. Alternatively, you can consider requesting a credit limit increase on your other cards. This is in order to compensate for the spending limit you’ll lose.
The Bottom Line
When you stop using your credit cards, your credit card issuers may cancel your accounts. And if this happens, it can lower your credit score. Especially if it raises your credit utilization past the recommended 30% threshold.
Fortunately, there is an easier way to improve your credit score. And it won’t require you to stop using your credit cards. Credit repair. Simply put, credit repair is the practice of removing negative information from your credit report.