Dormant Account

[MakingProgress]

DW has a Lowe's card that we had not used in about a year.   We used it recently and the statement cut.   When that cut we both got an alert from EX that a previously dormant account is not active.  The alert went on to explain that an account that shows no activity for 6 months is considered dormant.

So does this have any effect on FICO scoreing, or is it just EX alert us to make sure we are aware that the card was used?

[Thomas_Thumb]

Using a previously inactive account may have a short term impact on score. However, any impact should disappear after one or at most two statement cycles. It is always good to use cards you want to keep at least once a year to minimize risk of account closure due to inactivity. Actually it is best to use each card at least once every six months - some creditors, such as Wells Fargo, have been known to close accounts with only seven months of non use.

[MakingProgress]

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@Thomas_Thumb wrote:

Using a previously inactive account may have a short term impact on score. However, any impact should disappear after a one or at most two statement cycles. It is always good to use cards you want to keep at least once a year to minimize risk of account closure due to inactivity. Actually it is best to use each card at least once every six months - some creditors, such as Wells Fargo, have been known to close accounts with only seven months of non use.

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Would that short term impact be positive or negitive?  Assuming of coures the usage dosen't cross a util threshold. 

[Anonymous]

We had one very sharp case study that (if the results were accurately described) might suggest the possible effect that an account staying unused for a long time could have on one's FICO score.

The person had exactly one credit card.  No other revolving accounts.  He used it, and it reported a balance on all three bureaus, and then he did not use it at all for many months.  Exactly one year after the date of last activity (DOLA) his score took a huge drop.

It was as if FICO viewed that credit card as a real open tradeline with a zero balance, but that the scoring model dropped the account from consideration one year after the DOLA.  Because it was his only revolving tradeline, the effect was sharply magnified.  It was as if he had no revolving accounts of any kind, which affected many scoring factors.

That explanation is speculative.  Nobody knows that this is what caused it, but it was hard at the time to find any other explanation.  His reports still described the account as open and valid -- no change in the "status" field between months 11-14.

If that explanation is accurate, then a subsequent question is whether it is better to let the account to actually report a positive balance -- or is "use" enough (even if the account constantly reports a zero balance).  I don't think there is any way to know for sure.

As you can imagine, these conjectures are hard to test because you really need someone with (a) exactly one revolving account who is (b) willing to have it constantly report $0 for 14 months in a row.  Actually we might make some progress if we had someone willing to have all his cards report $0 for 14 months -- that would would at least rule out whether there is a scoring advantage in having the card report a balance or not (apart from using it).

Anyway it is very hard to find anyone willing to do this stuff.  People who care enough to be good testers on a forum like myFICO don't want to have all their cards reporting $0 for 14 months or (far worse) going through 14 months of complete inactivity.  I can't think of a single person on this site who'd want to risk that.

Bottom line, I view the above speculation about scoring impact to just be one more reason to avoid long periods where a card is never used or (less problematic) never reports a positive balance.  Just use the darn card once ever six months!  There's already lots of other good reasons to do that.

Hope that helps.

PS.  As far as your long/short term question, I am virtually certain that this guy would have gotten all his scoring points back once he used the card and let it report a balance. 

[Pikaboo-icu]

I got an alert of: :"an account that has been inactive for 5 months has become active".

Yep I charged $45. in gas on my US Bank Fred Meyer MC.

Penalty  -6  yes NEGATIVE SIX  points! On all 3 CB's. 

/eye-roll

[rbentley]

That seems a little harsh of a penalty, of cource we dont know you credit profile.  My guess is that you will quickly recover those points.  I would recomend making an additional charge on that account next billing period.  I highly doubt you would see a additional decrease in score and would like see your lost points recovered.

[Anonymous]

If you PIF by your statement closing date and it reports a 0 balance on your reports...could your account still be dormant?  Are we talking about simply using the card or using the card and you must allow a balance to report 1 time every 6 months?  For example I have a Best Buy card that I run barely enough through it so Citi doesn't close it.  However I have been PIF before the statement cuts.  If I was to allow a balance to actually report, would I lose points?

[Thomas_Thumb]

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@MakingProgress wrote:

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@Thomas_Thumb wrote:

Using a previously inactive account may have a short term impact on score. However, any impact should disappear after a one or at most two statement cycles. It is always good to use cards you want to keep at least once a year to minimize risk of account closure due to inactivity. Actually it is best to use each card at least once every six months - some creditors, such as Wells Fargo, have been known to close accounts with only seven months of non use.

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Would that short term impact be positive or negitive?  Assuming of coures the usage dosen't cross a util threshold. 

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In general posts I have read on an account inactive => active reported a short term score drop. The drop was modest and the posters had multiple other cards in regular use.

Unless you are applying for a mortgage or loan in the next 45 days, short term impact on score should be a moot point as the longer term affect is keeping the account from being closed.

[Revelate]

I'd go as far to say as any time I've seen a drop for this (the time value is a configurable option for Equifax in monitoring solution here at myFICO) it was on passing number of revolving tradelines with balance rather than something more nefarious.

If there is a real tradeline inactivity bit, it probably just excludes the account from scoring much like a dispute would be my semi-educated guess.

Frankly doesn't really matter, I agree with TT in suggesting if you want to keep the tradeline swipe it every so often so this is basically moot.

[Thomas_Thumb]

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@Anonymous wrote:

If you PIF by your statement closing date and it reports a 0 balance on your reports...could your account still be dormant?  Are we talking about simply using the card or using the card and you must allow a balance to report 1 time every 6 months?  For example I have a Best Buy card that I run barely enough through it so Citi doesn't close it.  However I have been PIF before the statement cuts.  If I was to allow a balance to actually report, would I lose points?

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If you use a card, regardless of whether or not it reports a balance, it is showing activity. If it shows activity it won't be at risk of closure due to inactivity. Likewise, the creditor will report activity to the CRAs and the account won't get classified as dormant or inactive.

Allowing the small balance to report on the BB card could potentially cause a minimal point drop due to an incremental increase in # cards reporting balances. However, if the BB card reported a balance instead of another card, no net change in # cards reporting.

For a dormant/inactive account the status change from inactive to active takes place when the card is used regardless of how payment is made. Please note: Length of time of non use before a card is considered inactive is creditor dependent.