Keep Your Credit Score Healthy!  Don’t Let the Banks Close Your Accounts!

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The key to consistently earning Big Travel with Small Money is putting yourself in position to earn the right credit card bonuses for your situation.  So it’s important to know the different application rules for each bank.  But it’s equally important to maintain a healthy credit score.

The best way to do this is to pay off your balance on time and in full each month.  But there are other factors that can affect your credit score’s health, like the age of your accounts.  So if you’re applying for lots of cards, it’s important to have some cards you’ll keep year after year AND to make sure they stay active!

Million Mile Secret Agent Rodney asked:

I’m considering getting the Chase Hyatt Credit Card or Chase IHG® Rewards Club Select Credit Card because they are worth keeping year after year for the annual free night.  I currently have 8 cards with Chase and American Express.  I probably would not spend much on the Chase Hyatt or Chase IHG Rewards cards.  How much spending do you think I would have to put on the card to keep the bank from closing it?

I like the way you’re thinking, Rodney!  Now that you’ve opened a bunch of credit cards, it’s important to consider the health of your credit score.  And the age of your accounts is one factor you shouldn’t ignore.   So applying for cards you’ll have long term is a good decision.

Keeping your accounts open is easier than you might think.  So let’s look at how to keep your account active and why you’ll usually want your accounts to remain open.

How to Keep Your Credit Card Account Active

In general, banks don’t want to close your accounts because you’re their customer.  And providing you with services, like credit cards, is how they make money.  But there are situations where the banks might close your account, such as:

• A long period of inactivity
• Your credit score decreases (by a lot)
• You’re not paying your bills
• The card is being discontinued

Sometimes you won’t have any control over whether or not your credit card accounts stay open.  This was the case for folks with the Citi Hilton cards, which were closed when AMEX became the exclusive credit card provider for Hilton.

But in most situations, you can keep your accounts open with very little effort.  Banks don’t have a spending requirement for keeping your cards active.  So ANY purchase, no matter how small, will count!

There is no official rule for how often you need to use your card to keep it open.  But a good principle to follow is to make a purchase with your card every few months.  The easiest way to do this is to set up a recurring monthly charge, like Netflix, Hulu, or your phone bill.  And if you set up an automatic payment, you won’t have to worry about forgetting to pay the balance off in full each month!

If you’re an avid collector of miles & points, you already know the importance of paying off your credit card balance in full each month to avoid nasty fees and interest.  But it’s also VERY important to stay on top of ALL of your bills.

When you miss payments, your credit score can quickly take a nosedive.  If this happens, the bank could close your credit card accounts, even if you’ve been faithfully paying that specific bank each month.  This is because lower credit scores are seen as riskier.  And banks don’t want to extend credit if they don’t think you’ll pay them back.

Why You Should Keep Your Credit Cards Open

Keeping credit card accounts open helps your credit score in 2 ways:

• It increases the age of your accounts
• Improves your credit utilization ratio

Your credit utilization ratio is calculated based on how much credit you have and the amount of credit you are currently using.  So if you have 3 cards open and each card has a $5,000 limit, you have $15,000 of available credit.  If you’re carrying a balance of $1,000 you are using ~7% of your credit ($1,000 balance / $15,000 in available credit).

But if you close one of your accounts, you’ll only have $10,000 in available credit.  This will increase your credit utilization ratio to 10% ($1,000 balance / $10,000 in available credit), which will negatively impact your credit score.

Cards Worth Keeping Year After Year

No-annual-fee cards are a great option for improving the overall age of your credit history, because they’re free to keep forever!  And there is no shortage of rewarding no-annual-fee cards to choose from.

In some situations, you can downgrade an annual-fee card to a no-annual-fee version instead of canceling the card.  In the past, team member Jason downgraded a Chase Sapphire Preferred Card to a Chase Freedom card.  And he can still transfer the points he earns to Chase Ultimate Rewards travel partners, because he can pool his points onto his wife’s Chase Sapphire Preferred card!

Sometimes, cards with an annual fee are worth holding onto.  For example, these cards come with a free hotel night each year you have the card:

• Chase Hyatt Credit Card – Receive a free night at a category 1 to 4 Hyatt hotel each year on your card anniversary ($75 annual fee is NOT waived the first year, comes with Hyatt Discoverist status)
• Chase IHG® Rewards Club Select Credit Card – Receive a free night in ANY IHG hotel each year on your card anniversary ($49 annual fee is waived the first year, comes with IHG Platinum status)
• Chase Marriott Rewards® Premier Credit Card – Receive a free night at a category 1 to 5 Marriott hotel each year on your card anniversary ($85 annual fee is waived the first year, comes with Marriott Silver status)

And even some “premium” cards come with perks that can be worth many times what you’ll pay to keep the card.  Team members Keith and Harlan are both happy to pay the $450 annual fee on the Citi Prestige card, because they have saved $1,000s using the card’s 4th night free benefit!  And the Chase Sapphire Reserve’s annual $300 travel credit and $100 Global Entry credit almost offset its $450 annual fee by themselves!

Bottom Line

Once you’ve started a collection of credit cards, you’ll need to stay organized so you can maintain a healthy credit score.

You’ll want to make sure you keep your credit card accounts open and active.  Because the amount of credit you have available and the age of your accounts both impact your credit score.

Keeping your cards open isn’t complicated.  Just make sure you have activity on the card every few months.  And take care to pay your other bills on time as well, because a dramatic decrease in your credit score could cause the banks to close your accounts.

Thanks for the question, Rodney!  Enjoy all those free hotel stays!