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FICO Scoring of inactive accounts

New Contributor

FICO Scoring of inactive accounts

There's a mishmash of advice when it comes to inactive accounts and how to best ensure that there positively reflected in FICO scores.

No doubt the most fixed advice is never to unnecessarily close an account, for you suffer a double FICO hit. It reduces your overall credit availability, and thus increases your utilization risk factor. It also drops from account aging, reducing the overall average account age.

There is some question in my mind as to whether it is excluded from the aging calculation so long as it continues to be reported on your credit bureau file (likely for up to another 10 years). However, the fact that it will ultimately drop if closed is a valid reason.


One piece of advice that seems a little dubious to me is that you should keep all accounts active by making at least one transaction every 6 mo. I haven't seen anything definitive that convinces me this is the case.

What I do accept is that it may be that only actively reporting accounts factor into evaluation of things like utilization. Can anyone make a substantive statement that supports this. Were this the case, then should a creditor stop updating a tradeline due to inactivity, then it might have a modestly negative impact on your score.

Of course, in that event, it only takes generating a single statement to restart scoring and that impact is entirely reversed. Thus, if you check your report a couple of times a year, it's not necessary to sweat regular purchases. Just reactiviate a dormant account if you see that it has stop updated (and I've had some long dormant accounts that NEVER has failed to update each month).

- Harry

Starting Score 1/01/10: TU:768 EQ:770
Current Score 8/21/12: TU:776 EQ:779
Goal Score 12/31/10: . TU:800 EQ:800


Take the FICO Fitness Challenge
Message 1 of 6
5 REPLIES
Regular Contributor

Re: FICO Scoring of inactive accounts

"Of course, in that event, it only takes generating a single statement to restart scoring and that impact is entirely reversed."
 
Why let get your card go inactive. If you want to go that route feel free, it's just much easier to do the periodic transaction. And don't forget a creditor doesn't have to make the card move to inactive at any point in time, they can also close it at any time.
Message 2 of 6
New Visitor

Re: FICO Scoring of inactive accounts

I've always heard that's it's better to have a balance on at least one cc because creditors might feel that at any point you max them out.  If they see just a small balance, they they feel you are using them wisely.  Also, I don't think this is true for most cc's, but for store cards, I've had mine closed for inactivity. 
 
Joey
Message 3 of 6
Moderator Emeritus

Re: FICO Scoring of inactive accounts



hdporter wrote:
There's a mishmash of advice when it comes to inactive accounts and how to best ensure that there positively reflected in FICO scores.

No doubt the most fixed advice is never to unnecessarily close an account, for you suffer a double FICO hit. It reduces your overall credit availability, and thus increases your utilization risk factor. It also drops from account aging, reducing the overall average account age.

There is some question in my mind as to whether it is excluded from the aging calculation so long as it continues to be reported on your credit bureau file (likely for up to another 10 years). However, the fact that it will ultimately drop if closed is a valid reason.


One piece of advice that seems a little dubious to me is that you should keep all accounts active by making at least one transaction every 6 mo. I haven't seen anything definitive that convinces me this is the case.

What I do accept is that it may be that only actively reporting accounts factor into evaluation of things like utilization. Can anyone make a substantive statement that supports this. Were this the case, then should a creditor stop updating a tradeline due to inactivity, then it might have a modestly negative impact on your score.

Of course, in that event, it only takes generating a single statement to restart scoring and that impact is entirely reversed. Thus, if you check your report a couple of times a year, it's not necessary to sweat regular purchases. Just reactiviate a dormant account if you see that it has stop updated (and I've had some long dormant accounts that NEVER has failed to update each month).

- Harry


I am proof that a lender will close your account do to inactivity (or will cease reporting). No harm in using your cards once or twice a year. As far as utilization... for me 1-9% has always been the sweet spot. I see better scores here than when I PIF.. of course YMMV.
Message 4 of 6
New Contributor

Re: FICO Scoring of inactive accounts

Closure of inactive accounts is a different animal, and not one that I intended to touch on. Generally speaking, you don't want to leave an account dormant. When it comes to most accounts, use once a year should be more than sufficient to keep the account open. (However, some very limited use accounts ... e.g. Dell Computer ... have been known to close within a shorter timeframe.)

My specific question pertained to the adage that if you don't use an account for 6 months it no longer factors into your FICO score. I believe, to the contrary, that so long as a creditor continues to update a tradeline it's rated, whether in use or not.

I note this because I have a handful of accounts that haven't been used in 2 or more years. They're still open and the tradelines continue to update. Indications are that they're weighted in my FICO scoring in all respects -- but it would be useful to have that fact confirmed.

- Harry

Starting Score 1/01/10: TU:768 EQ:770
Current Score 8/21/12: TU:776 EQ:779
Goal Score 12/31/10: . TU:800 EQ:800


Take the FICO Fitness Challenge
Message 5 of 6
Highlighted
Moderator Emeritus

Re: FICO Scoring of inactive accounts



hdporter wrote:
Closure of inactive accounts is a different animal, and not one that I intended to touch on. Generally speaking, you don't want to leave an account dormant. When it comes to most accounts, use once a year should be more than sufficient to keep the account open. (However, some very limited use accounts ... e.g. Dell Computer ... have been known to close within a shorter timeframe.)

My specific question pertained to the adage that if you don't use an account for 6 months it no longer factors into your FICO score. I believe, to the contrary, that so long as a creditor continues to update a tradeline it's rated, whether in use or not.

I note this because I have a handful of accounts that haven't been used in 2 or more years. They're still open and the tradelines continue to update. Indications are that they're weighted in my FICO scoring in all respects -- but it would be useful to have that fact confirmed.

- Harry

All creditors have different policies in regards to account activity. I would say you are lucky not to have an account closed with 2 years of no use. Why not just charge something once a year? What's the harm? The risk of losing the age and the trouble to get it reopened is just not worth it to me.
 
Anyway.. as long as the account is there it has some impact on your score. That impact would obviously be postitive as long as util was low and there was no derog information associated with the TL.
Message 6 of 6