Keep Your Credit Cards Active

Credit card issuers are on a rampage – cutting credit limits, increasing interest rates, and closing inactive credit card accounts. Though you don’t have much control over rising interest rates and decreased credit limits, you can keep your credit cards open by using them every once in awhile.

Why are creditors closing inactive cards?


Credit card companies don’t make any money on accounts that aren’t used. In fact, it costs them money. During this credit crisis, it’s risky for credit card companies to have unused credit cards on their books, because it’s hard to predict what you’re going to do with the credit card. You could decide to max out the card one day and never pay back the balance. In this case, it’s cheaper for the credit card company to just let you go.

Why should I care?

Having a credit card closed could lower your credit score. First, part of your credit score calculation considers the age of your credit – an older credit history is better. If your oldest credit card gets closed, it won’t be factored into your credit score. Your credit will seem younger, and your credit score will drop.

Another part of your credit score measures your level of debt by comparing your total balances to your total credit limits. The higher your credit card balances in relation to your credit limits, the lower your credit score will be. Having a credit card closed raises your ratio of balances to credit limits – your credit utilization – and lowers your credit score.

What can I do?

If your credit card has recently been closed, call your credit card issuer and request to have your account reopened. It helps if you’ve been a long-time, timely-paying customer.

Keep your credit card open by using it periodically and paying the balance off when the billing statement comes. By doing this, you’re letting your credit card know that you still appreciate and use the credit card.

Long Loan Shopping Could Hurt Your Credit Score

It’s a good idea to shop around for a loan to make sure you get the best terms and even better the lowest interest rate. But, loan shopping could hurt your credit score.

An inquiry is placed on your credit report each time a lender checks your credit history to qualify you for a loan. Your credit report is a compilation of most of your credit and loan accounts and is the key factor used to determine your credit score. Credit inquiries count for 10% of your overall credit score. Each additional inquiry can knock your credit score down a few points, affecting your ability to qualify for another loan.

The model for the FICO score – the most well-known and widely-used credit score – helps protect you from the impact of rate shopping for mortgage and auto loans. The scoring model essentially ignores inquiries made within a 30-day window while you’re rate shopping. So, if you find a loan during that time, your lenders never know you’ve been putting in loan applications all over town. Even after the 30-day “grace period” is up, all the inquiries you’ve made are treated as just one inquiry when your credit score is updated.


The FICO score calculation has been updated a few times over the years, so the length of the grace period depends which credit score calculator your lender’s using. One model has a 14-day grace period, another uses 30-days, and the newest model uses a 45-day time span.

It’s important to note that the loan-shopping grace period for credit report inquiries only applies to mortgage and auto loans. If you’re shopping for another kind of loan, you don’t get the convenience of hidden inquiries. When you’re on the market for a personal or student loan, your best bet is to find a loan within a few days before the credit report inquiry makes it to your credit report. Otherwise, your credit score will feel the full brunt of your rate shopping. Then again, inquiries only count for 10% of your overall score, so they couldn’t hurt that much, could they?

Getting a Good Loan Rate

These days getting approved for a loan is hard. Getting approved and getting a good interest rate is even harder. But, it’s not impossible.

If you want to get a good interest rate on a loan, the most important thing to have is a good credit score. Without a solid credit history, you can forget the competitive interest rates. These days, lenders are looking for credit scores of 720 or higher to give loan applicants a good rate. So before you fill out a loan application, check your credit score. That way, you’ll know whether you’re ok to apply for a loan, or if you need to do some work on your score.


For those who need some credit score work, one of the quickest ways to see a boost in your score is to dispute inaccurate items from your credit report. If your credit score is below 720, check your credit report to make sure there are no errors. If you do find a mistake, dispute it with all three credit bureaus to make sure your complete credit history is correct.

To look at all three of your credit reports, click here.

The other thing you’ll need to get a good interest rate is a verifiable income. The days of stated-income loans are long gone. With a stated-income loan, the lender would “take your word for it” so to speak in exchange for a higher interest rate. You got the loan without the trouble of proving your income. The bank got extra money. Everyone was happy. It doesn’t quite work like that. You need to be able to prove your income with recent paystubs, bank statements, and income tax returns. Some self-employed individuals who take large businesses deductions might have trouble even getting approved for a loan, much less get a good interest rate, even with good credit scores.

Finally, you’ll need to reduce your debt. Lenders want to see your debt-to-income ratio below 36%, even after you’ve taken on the new loan. You can calculate your debt-to-income ratio by dividing your total monthly income by your total monthly debt payments.