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Inactive Credit: How Long It Takes, and How to Use a Credit Card to Prevent It

Credit Card Basics, Credit Cards, Credit Cards for Bad Credit
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Let’s say you’re Sleeping Beauty, and you’ve just woken up after 100 years. (This is the fairy-tale version, not Disney.) You’ll need to buy grown-up things such as groceries and a cell phone, which means you need a way to pay for them. But if you haven’t used a credit card in a long time, it might be harder than expected to get approved for a new one.

In fact, if you’ve had no activity on your credit accounts in recent years, it’s possible that your credit file will have disappeared. That means you’re in the same position as someone who’s never had a credit file, and you’ll have to rebuild your credit.

For the care and growing of your credit history, it’s a good idea to keep your credit card accounts active. You can do that by using each of your credit cards at least once a month, even if it’s only to buy a pack of gum. After all, using credit is the best way to demonstrate that you can use credit responsibly.

But there are plenty of reasons your accounts may go dormant for a while — because of an illness, an extended overseas work assignment or a spouse who has all the household’s accounts in his or her name. Heck, maybe you lived in a commune and had no use for money at all.

In a worst-case scenario, inactive accounts eventually can mean that your credit history will disappear. But that takes a long, long time to happen.

Let’s look at the details.

What happens if you don’t use credit at all?

Most lenders — credit card issuers, mortgage banks, etc. — report your account status and recent activity to the credit bureaus. This information makes up your credit history, and it’s used to generate your credit scores. Lenders look at your past credit behavior to determine how risky it would be to lend you money.

If you stop using your credit cards, those accounts will still show up on your credit history — for a while.

» MORE: Life without credit cards: How two families make it work

How long accounts stay on your record

The length of time an inactive or closed account remains in your credit file depends on whether it shows positive or negative information about you.

“If the last thing that happens to a particular account is they’re in a delinquent status, we’re required by our regulators to remove that from the file after seven years,” says Mike Catanese, vice president and consumer data leader for the Atlanta-based credit bureau Equifax.

If the account looks good on your record, though, it’ll stay there for 10 years.

That’s right. Good news stays on your credit file longer than bad news does. So if you have an account in good standing and close it or stop using it, it still will help your credit for 10 years.

Why is that?

“It’s driven by what the lenders, or the people that are making future loans, will want to use,” Catanese says. “A bank won’t look at what you did 15 years ago as relevant for a credit decision today.”

The effects of inactivity

What’s harder to pin down is the effect that inactivity will have on your ability to get credit. If you have a credit file, but it shows you haven’t been using credit at all for several years, could that keep you from getting approved for a credit card? Catanese says this will vary a lot depending on your individual circumstances and the lender’s requirements.

“The goal of pulling a credit report for a lender is to decide not only whether you’re low enough risk to get some kind of loan or credit but also to understand how much you can handle in credit,” Catanese says.

If you haven’t been using credit at all in recent years, lenders may be less eager to lend you money. Or, they may give you a smaller credit line than you expect.

If you do end up with no credit history

Back to Sleeping Beauty. If you’ve been out of the credit loop for an extended period, the first step is to request a free credit report from each of the credit bureaus to confirm that you’re not in their system. If someone has stolen your identity or there has been some activity on an account that you forgot about, you may have bad credit to contend with rather than no credit.

After you’ve confirmed that you have no credit history at all, you can start rebuilding.

There are multiple ways to do this. Among them:

» MORE: Building credit? How a credit card ‘gets you there faster’

Reasons to keep your credit file active

If you’re thinking of putting your credit cards on ice, or you’re getting ready for an international move, it may be a good idea to take steps to ensure that you won’t lose the good credit history you’ve built.

“Not only does it affect whether you get a loan, it can affect insurance applications and job applications,” Catanese says of the need to have good credit history. “Rightly or wrongly, credit reports now are a large part of establishing you as a responsible adult in our society.”

Consider putting one small recurring payment on a U.S.-issued credit card, such as a Netflix subscription or a utility bill. That means your credit card will be used at least once a month, so the issuer will continue to report your activity to the credit bureaus and your credit file will stay active. You can automate things even further by setting your credit card to be paid automatically out of a bank account. Now all you have to do is make sure there’s enough cash in the bank account for that automatic withdrawal to clear, and voila. Your credit history will remain active, and you will barely have to think about it.

Of course, completely ignoring your credit accounts isn’t the best idea, either. Log in periodically to see whether there have been unauthorized charges, and check your credit report once a year to make sure there are no problems or surprises.

With a little forethought, though, you can set up a low-maintenance plan to keep your credit active while you’re off doing more important things with your time.

And if your history has already vaporized? You built a credit record once before, and you can do it again.

Virginia C. McGuire is a staff writer at NerdWallet, a personal finance website. Email: virginia@nerdwallet.com. Twitter: @vcmcguire.