Oh, go ahead, use your credit card.
But just a little.
Everyone knows the addictive, self-destructive nature of credit cards. Millions of people get into trouble spending with abandon, racking up big balances that carry huge interest costs and murderous penalties for minor infractions like slightly overdue payments.
So the best advice has always been to use your credit card sparingly, as a convenience, not to borrow money for the long term. Better yet, don’t use your cards at all. Keep them for emergencies and use debit cards instead.
But now we see news reports of embarrassed card users having charges denied because their cards have been canceled without notice. It sounds like a penalty for some grievous sin, like busting through the credit limit. But it turns out card issuers are increasingly canceling cards for the simple reason that customers haven’t used them, typically for 12 or more months.
These cancellations for inactivity are part of a broader tightening up, as issuers seek to trim losses from customers who are falling behind in payments. Card companies also cancel accounts when blemishes appear on credit reports, even if the customer has handled the card responsibly.
Consumer-protection laws give issuers wide latitude in canceling accounts, even allowing them to do so without advance notice. This could be merely embarrassing if you’re out with friends or clients, but imagine if you were traveling overseas and needed your card for a hotel or airfare.
Whatever type of card you use, Visa (Stock Quote: V), MasterCard (Stock Quote: MA), Discover (Stock Quote: DFS) and so forth, take some precautions:
- Get rid of any cards you really don’t need. Simply having that access to credit makes you look riskier even if you never make charges.
- Use the cards you keep. A few times a year is enough to keep the account active. To keep it simple, have some routine charges like the electric bill automatically put on the card. Just be sure to pay it off in the grace period.
- Check your credit report and score several times a year to find errors that could hurt your rating.
- Before traveling, notify the card issuer. Otherwise, charges could be denied because the card company suspects the card was stolen.
- Pay your card bills in full every month. Use online bill paying services linked to a checking account so you can track your card bills and make payments on time when you are traveling.
Most important, don’t let your card balance mushroom. Use the Credit Card Payoff Calculator to devise a plan for clearing debt.