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Consumers Warned About Inactive Cards

By Sally Maison
Published: Tuesday, November 3rd, 2009

Having a couple of cards can help a credit score but experts warn consumers that keeping their plastic inactive has a negative impact on their rating.

Consumers Warned About Inactive CardsAccording to the credit bureaus, an average American carries 13 debt obligations under his name. Out of the 13, nine of them are likely to be credit cards. Bank cards, charge cards, gas cards, and department store cards are just some of the plastics that consumers keep inside their wallet. At times, those plastics become so many that owners barely and even forget to use them. With more than half of Americans carrying at least two cards, it is not hard to see why.

But experts say while store cards are good and can actually give consumers discounts, it is not helpful if they do not use them. Experts advise cardholders to close plastics that are rarely or no longer used because inactivity can hurt a credit score.

FICO score, the most widely used consumer rating model, is calculated from several data about a consumer’s credit activities. According to the official website of Fair Isaac, they rate consumers based on five categories. Payment history accounts for 35 percent of a consumer score, followed by amounts owed at 30 percent, length of credit history accounts makes up 15 percent of it, while new credit and types of credit used each accounts for 10 percent of a rating.

The company advises consumers who have a short credit history not to open new accounts rapidly. New applications reduce an average account age and can badly hurt a credit score. Additionally, racking up too much debt and other credit-related obligations quickly can make one look risky among creditors. Consumers who are considered risky are charged with higher interest rate and at times rejected when applying for a loan.

Specialists explained that having a good number of plastics can improve a person’s credit limit. A higher limit helps a rating but having too many accounts leaves a person more prone to acquiring more debt. If person is not able to meet all his obligations, his score could drop by as much as a hundred points. Having a good credit score is significant since it will play a major role for people to refinance their loans once they finally get out of recession, experts add.

Experts remind consumers that the main goal of creditors is to get paid so they want to choose people who have a strong ability to do so. They noted that most people have the tendency to live outside their means, something that they should not do whether the country is undergoing recession or not.

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