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It’s easy to treat your credit score as out of sight, out of mind — especially in times like these. But not keeping tabs on your score is a mistake that can have serious repercussions, as that little number follows you around.
Take it from me.
About a year ago I got two new credit cards: the Blue Cash Everyday® Card from American Express and the Capital One® SavorOne® Cash Rewards Credit Card. Before then, I had mostly used just one credit card — one I got through a large regional bank when I was 18 and used all through college and my 20s.
With my credit in great shape, I decided to find new cards that offered rewards better suited to my spending habits. Plus, I really liked the long introductory APR periods, which would give me a break from paying my credit card bills in full each month to focus on paying off some other debts, like student loans.
After about a year of using these two new cards — a time when I wasn’t using my older card — my bank canceled my old card due to inactivity. Suddenly, without any warning, my oldest and largest credit account (my limit had worked its way up to over $20,000 for that one card) was gone.
13.99% to 23.99% variable APR
Good to Excellent
$150 statement credit after you spend $1,000 in the first 3 months from account opening
15.49% – 25.49% variable APR
Earn a one-time $150 cash bonus once you spend $500 on purchases within the first 3 months
0% intro APR for 15 months
My credit score plummeted by 75 points
The day I found out about my bank closing my card, I was sitting on my porch having a morning cup of coffee when I got a notification from Credit Karma that my score had changed. It had gone down — by 75 points. In a single day.
At first, I thought my identity had been stolen. It took a few moments to uncover what had happened. And, the most bothersome thing was that I found out too late to do anything about it. The card was closed. What was done was done.
Why did my score drop so drastically? My old credit card getting closed meant that the average age of my credit accounts plummeted and my credit utilization rate instantly jumped from about 20% to over 30%. The length of your credit history accounts for 15% of your credit score according to the FICO score model, while amounts owed (credit utilization) accounts for an even bigger piece of the pie: 30%.
Now, I have a background in finance. I worked in the financial services industry for a decade. I held multiple securities licenses, sat on a board for FINRA, and helped hundreds of people make important financial decisions. If this can happen to me, it can happen to anyone — especially since banks have been closing cards, cutting credit limits, and denying applications amid the uncertainty about COVID-19.
So, how can you stop this from happening to you? Start by following these tips:
Prioritize your credit accounts
If you haven’t already, sign up for Credit Karma or another app so you can check your credit score for free and see the highlights from your credit reports.
Take the time to see which of your credit accounts mean the most for your score. Look for your oldest accounts and your accounts with the highest credit limits, and make sure you use these cards. You want to keep them open (assuming they’re current) and the best way to do that is to use them.
That’s not to say you should rack up big balances, as that can leave you paying a lot of interest each month. But, definitely don’t just let those cards sit in your card gathering dust like I did.
Limit your credit utilization rate
Try to keep your credit utilization (your total balances divided by total available credit) well under 30%, but not at 0%. This means you should only charge what you can afford to pay off each month. This shows your lenders that you’re using your credit, but not over-using it.
And, at the same time, it helps protect you in case you get laid off or your income falls unexpectedly. That way, you aren’t left with a large balance that you have to pay off.
Use your cards regularly
To avoid having a credit account closed unexpectedly, you need to use it. Try to use your most important cards at least once every 90 days — even if it’s just for a small expense you can pay off quickly.
If your lender cracks down on their consumer credit exposure, you may still have your credit limit lowered, but you probably won’t have your card closed without warning.
Read more: Banks can close your cards if you don’t use them enough, but you can prevent this by using a simple spreadsheet
Hold off on new applications
If you’re thinking about getting new credit cards, you may want to hold off for now—or wait until you’re pre-approved for one. A lot of lenders are trying to limit their risk, and many are denying credit card applications that would be approved under normal circumstances.
It’s worth noting that this is mostly related to short-term revolving credit accounts like credit cards. Other debt, like home loans and home equity lines of credit — which are secured and often sold by your lender to outside investors — are still just as available as they were before the pandemic.
Don’t ignore your finances
The biggest piece of advice to help you navigate these uncertain times is also the simplest: Keep your finances in good shape by keeping them top of mind.
In my case, I ran into trouble because I had held that credit card for so long that I couldn’t even imagine that the bank would cancel it. So, I took it for granted. If you want to keep your finances — and your credit — in good shape, take the time to review your credit and finances and have a strategy to keep both intact.
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Disclosure: This post is brought to you by the Personal Finance Insider team. We occasionally highlight financial products and services that can help you make smarter decisions with your money. We do not give investment advice or encourage you to adopt a certain investment strategy. What you decide to do with your money is up to you. If you take action based on one of our recommendations, we get a small share of the revenue from our commerce partners. This does not influence whether we feature a financial product or service. We operate independently from our advertising sales team.