Keeping Cards Active and Paying Before the Bill Comes

[sengsational]

Clark Howard advises people that have unused credit cards to use them twice a year. The advice comes from the fact/perception that closing accounts (changing the ratio of available credit to utilized credit) will have a negative impact on your credit rating.

My question is not to debate whether the above fact/perception is true, worth worrying about, etc (not that I can stop the conversation from going there, it's just not what I'm interested in).

My question has to do with the mechanics of using a card twice a year.

Recently, I took three old cards to the gas station, and put 1/3rd of a tank on each card, then went home and did electronic payments to the three cards for the amount I spent. I just wanted to "get it out of the way".

Then I got to thinking...maybe that was ineffective against my goal of keeping the cards active. Why? Well, when I look at my credit files, it shows balances of zero on those cards for the past 12 months. And if I pulled my credit file now (after using the cards), it will STILL show zero (because the balance at the closing dates will be zero since I paid them off before the bill came).

So it seems to me that this is a nuanced question about the definition of what makes a credit card active. Is a continual zero balance inactive, even though, the card did have spending? I figured maybe someone worked in the credit reporting industry or maybe had paid balances before the bill came, then noticed something on their credit file.

 

[Spock]

The balance doesn't matter on your credit files. I think it would show zero even if you waited for a bill and then paid in full.
"Active" = "used" as far as the cc company is concerned. you're just trying to keep the credit line open and prevent the cc co from canceling it due to inactive.

 

[scrabbler1]

I have a back-up CC I use once a year, a small, automatic charge I never switched to my main card 5 years ago when I obtained a cashback card. The card has remained open and I get lots of special balance transfer offers from the bank I have no interest in.

 

[Gumby]

I use each of my credit cards at least once per year just to keep them active. I have them all set to autopay the statement balance when the bill posts. I don't know if paying before the bill posts affects this.

 

[OldShooter]

Bigger picture curiousity questions: Why so many credit cards and unused? & what is important about "active?"

DW and I each have one credit card, from different issuers to avoid any problems when we are traveling. If one won't work, the other probably will. Same-o one debit card each from different banks, used primarily at ATMs domestic and international.

I guess technically I have a Home Depot card where the checkout clerk signed me up and gave me an $80 discount on a load of lumber a couple of years ago. For $80 I can take the trouble to cut up a card when it comes in the mail, which I did. I don't know or care whether it is "active."

 

[MichaelB]

Clark Howard advises people that have unused credit cards to use them twice a year. The advice comes from the fact/perception that closing accounts (changing the ratio of available credit to utilized credit) will have a negative impact on your credit rating.

My question is not to debate whether the above fact/perception is true, worth worrying about, etc (not that I can stop the conversation from going there, it's just not what I'm interested in).

My question has to do with the mechanics of using a card twice a year.

Recently, I took three old cards to the gas station, and put 1/3rd of a tank on each card, then went home and did electronic payments to the three cards for the amount I spent. I just wanted to "get it out of the way".

Then I got to thinking...maybe that was ineffective against my goal of keeping the cards active. Why? Well, when I look at my credit files, it shows balances of zero on those cards for the past 12 months. And if I pulled my credit file now (after using the cards), it will STILL show zero (because the balance at the closing dates will be zero since I paid them off before the bill came).

So it seems to me that this is a nuanced question about the definition of what makes a credit card active. Is a continual zero balance inactive, even though, the card did have spending? I figured maybe someone worked in the credit reporting industry or maybe had paid balances before the bill came, then noticed something on their credit file.

I have a Fidelity debit card which is used for travel abroad. Fido sends me an email warning it will deactivate the card if it hasn’t been used in 12 months. So, from their perspective, one transaction will do.

A comment on balance. You can pay the card in full each month, yet the CC company can report a balance to credit agencies. They report on a specific calendar day, not on payment day.

 

[audreyh1]

I have some cards that will probably be closed by the issuer. Fine with me. The effect on my score will only be temporary.

I pay my cards off just a day or two when due. My credit score rarely drops below 800.

I have a lot of credit cards. Some are used for monthly bill pay only. Some are used only for online ordering via PayPal or ApplePay. Another is used for international ordering or prepaying for international reservations. Several are used domestically and carried in my wallet. One is used for buying airline tickets and paying for rental cars. Another for gas. And a couple are only used during international travel. It’s all driven by rewards categories and foreign transaction fees.

 

[Animorph]

I received the credit report drawn during my last mortgage refi. It showed balances on a few of our cards even though they all get paid off automatically by the due date. I'm pretty sure the CC company considers any card use as activity, though it's up to them if your particular activity level is worth it to them.

 

[Jerry1]

I have a Fidelity debit card which is used for travel abroad. Fido sends me an email warning it will deactivate the card if it hasn’t been used in 12 months. So, from their perspective, one transaction will do.

A comment on balance. You can pay the card in full each month, yet the CC company can report a balance to credit agencies. They report on a specific calendar day, not on payment day.

That's my understanding as well. It seems like for credit reporting purposes you would want to show a balance. However, maybe it is just the ratio of credit used to credit available, in which case it really wouldn't matter. Personally, if I cared enough to do one transaction a year, I'd find out what day the balance gets transferred and let that get captured before paying it off.

 

[foxfirev5]

I have some cards that will probably be closed by the issuer. Fine with me. The effect on my score will only be temporary.

I pay my cards off just a day or two when due. My credit score rarely drops below 800.

I have a lot of credit cards. Some are used for monthly bill pay only. Some are used only for online ordering via PayPal or ApplePay. Another is used for international ordering or prepaying for international reservations. Several are used domestically and carried in my wallet. One is used for buying airline tickets and paying for rental cars. Another for gas. And a couple are only used during international travel. It’s all driven by rewards categories and foreign transaction fees.

Good points. I've run a scenario on AMEX which provides the effects of closing accounts, usage etc. When I closed my longest held CC the effect was less than 5 points, still over 800. In full disclosure most current accounts are over 10 years.

 

[JustCurious]

And if I pulled my credit file now (after using the cards), it will STILL show zero (because the balance at the closing dates will be zero since I paid them off before the bill came).

It doesn't matter when the bill came. Credit card issuers report balances to the credit agencies at a certain date during the month, so your balance will show on your credit report as of the date that it is reported to the credit agency, not when the statement came. They are probably not the same date.

 

[FireFool]

So it seems to me that this is a nuanced question about the definition of what makes a credit card active. Is a continual zero balance inactive, even though, the card did have spending? I figured maybe someone worked in the credit reporting industry or maybe had paid balances before the bill came, then noticed something on their credit file.

The credit bureaus (reports) have no role in whether or not a card remains active. The issuer of the card (e.g. Chase, Citi, etc.) decides on their own internal rules/processes for keeping a credit card open, and they can change those rules pretty much whenever they want. Generally speaking though if there's any activity (or as you describe it as "spending") over the course of a year it's highly unlikely they would choose to close an account (acquiring new CC customers is expensive so they aren't willynilly chasing customers away).. Your paying the balance caused by that activity immediately should not have any bearing on them flagging the account for closure due to customer inactivity. I will add though that if any of these cards you use so infrequently has an annual fee associated with them, in nearly every case I'd advise closing them - especially for people that are financially responsible enough to be concerning themselves with early retirement.

Edit: Probably a check for if your issuer considers your same day charge/payment as activity is if it's reflected on a monthly statement for that month. If it triggers a statement you can be 100% confident that the issuer is considering it as "activity". I'd find it unlikely, but as I said each issuer has their own rules and processes and if they process "batch" daily to the point they don't issue a statement there's the remote possibility they didn't recognize activity.

 

[ExFlyBoy5]

When I closed my longest held CC the effect was less than 5 points, still over 800. In full disclosure most current accounts are over 10 years.

This. I used to play the "use it or lose it" game for a while and got tired of trying to keep up...so I stopped. Of the 15 or so cards that I have had for a few years but never use, 4 have been closed. Each time, I took a credit "hit" of 5 or less points that recovered the following month.

I use 3 cards these days and pay them off on the statement closing date. I do this so it forces me to look at/review the accounts. Otherwise, I would probably ignore them since they are on auto pay in case I miss my manual payment.

Also, the only "negative" on my report is length of history. If I recall, the average is about 7.5 years. This "negative" effect keeps my credit in the dumpster as I can't get it much higher than 825.

A comment on balance. You can pay the card in full each month, yet the CC company can report a balance to credit agencies. They report on a specific calendar day, not on payment day.

As far as I know, most report whatever the balance is on the statement closing date. At least that has been my experience with a LOT of credit cards over the years.

 

[FANOFJESUS]

I use my credit cards once a year. Works good.

 

[OldShooter]

I...I have a lot of credit cards. Some are used for monthly bill pay only. Some are used only for online ordering via PayPal or ApplePay. Another is used for international ordering or prepaying for international reservations. Several are used domestically and carried in my wallet. One is used for buying airline tickets and paying for rental cars. Another for gas. And a couple are only used during international travel. It’s all driven by rewards categories and foreign transaction fees.

Wow. It makes me tired just to think about trying to do this.

 

[bobandsherry]

The balance doesn't matter on your credit files. I think it would show zero even if you waited for a bill and then paid in full.
"Active" = "used" as far as the cc company is concerned. you're just trying to keep the credit line open and prevent the cc co from canceling it due to inactive.

Doesn't work that way for me. I always pay my credit card off every month, but it has a reported balance. The amount reported is from you statement so if paid off before statement is cut then it will report 0. However that has nothing to do with the bank showing last activity, that should still accomplish what OP wanted. For me, I find that using cards once every other year is more than enough to keep card 'active'.

 

[Alan]

I have a US CC that I only use when visiting the USA which is not always every year so I have one of my US subscriptions, $4.99/month paid out of it and autopay the balance by my US bank every month.

 

[SecondCor521]

Using a card (buy buying gas or whatever) once a year will suffice to keep the account open. Probably once every other year, as bobandsherry noted, is sufficient. Twice a year is overkill but will obviously work.

Paying it off before the statement close is irrelevant - the activity will keep the account open, as noted in the previous paragraph.

All major issuers will generate a statement in any month where you have activity (either payment or spending). Most will not generate a statement if you have no activity during the month. In this case the month is from one monthly closing date to the next.

All major issuers report your statement closing balance to the credit reporting agencies on your statement closing date every month. The one exception to this is US Bank, which reports balances at the end of the calendar month regardless of when your statement closes.

If it's a card you rarely use and don't have a balance, and you're trying to keep the card open, you could always wait until after the statement closes but before the statement due date to pay it in full. If you're not carrying a balance, all credit cards will give you between 15 and 30 days to pay it off. I personally have all (well, almost all) of my cards set up to auto pay the statement balance in full by the due date, which I find easiest.

The one thing to caution about is small balance forgiveness. If you charge less than a dollar or two on a card, it is possible that your balance would be forgiven. If this happens, I'm not sure how it affects all of the above. I would guess it would still count for activity, generate a statement, and report to the bureaus, but I'm not 100% sure on that.

 

[Walt34]

I guess technically I have a Home Depot card where the checkout clerk signed me up and gave me an $80 discount on a load of lumber a couple of years ago. For $80 I can take the trouble to cut up a card when it comes in the mail, which I did. I don't know or care whether it is "active."

It is probably still active. My credit report shows a cc account with some bank whose name I forget, that was for a cc with the regional hardware chain Hechinger's that I opened in the early 1980's. D.C. area folks "of a certain age" will remember them, the chain went out of business in the mid 1990's I think. It was the original home improvement "big box store" before that became a thing, at least in the D.C. area.

 

[audreyh1]

Wow. It makes me tired just to think about trying to do this.

Hey, it’s working for us. Usually well over $1000 cash back annually. Used to it. Love getting 3% and 5% back when buying stuff.

But if I’m not using a card I’m happy to have the issuer close it.

 

[Dtail]

It doesn't matter when the bill came. Credit card issuers report balances to the credit agencies at a certain date during the month, so your balance will show on your credit report as of the date that it is reported to the credit agency, not when the statement came. They are probably not the same date.

100% correct.
Thus I pay off my balances about 4 days before it is due (which is at month end), so the balances reported by the credit agencies is not zero, but does have only 4 days of charges.

 

[Dtail]

Bigger picture curiousity questions: Why so many credit cards and unused? & what is important about "active?"

DW and I each have one credit card, from different issuers to avoid any problems when we are traveling. If one won't work, the other probably will. Same-o one debit card each from different banks, used primarily at ATMs domestic and international.

I guess technically I have a Home Depot card where the checkout clerk signed me up and gave me an $80 discount on a load of lumber a couple of years ago. For $80 I can take the trouble to cut up a card when it comes in the mail, which I did. I don't know or care whether it is "active."

Worth it for me to have 5 cards.
Got back $3,643 last year at an effective rate of 3.21%.

 

[JustCurious]

100% correct.
Thus I pay off my balances about 4 days before it is due (which is at month end), so the balances reported by the credit agencies is not zero, but does have only 4 days of charges.

I think you meant you pay off your balance about 4 days before the statement cutoff date.

 

[Dtail]

I think you meant you pay off your balance about 4 days before the statement cutoff date.

Yes correct, which also happens to be at the end of the month.

 

[sengsational]

Thanks, all for your perspectives on this.

There seems to be two aspects being addressed: "active" as defined by card issuer, and "active" as viewed by the credit scoring agency.

I agree that the timing of the payoff (which, yes, generates a zero balance) is inconsequential when addressing "active" as defined by the card issuer.

Activity status, as defined by the credit scoring agency is kind of what I was getting at, but failed to be clear about that in my OP.

Based on some of the responses, I did a bit of digging and found that what's on the top of the statement is what's transferred to the credit bureau (at least in the example I pulled). (see image)

What that means to me is that if I went right home, paid for the once a year charge right away (making the next bill come with a zero balance), then the zero for that month would look exactly like the zero from a month where the card got no use at all.

The bottom line for me, I think, is if I bother keeping these cards active, I might as well wait for the bill before I pay. This way, it won't just be $0, $0, $0, ... for many years straight and maybe will figure positively into the credit scoring formula.

All that being said, I'm well above 800 and don't need to borrow any money. The OP was more of a noodle into this realm for sport.

The balance doesn't matter on your credit files. I think it would show zero even if you waited for a bill and then paid in full.
"Active" = "used" as far as the cc company is concerned. you're just trying to keep the credit line open and prevent the cc co from canceling it due to inactive.

I thought that if a card showed $0 balance for years, it would be different on the scoring than if, every now and then, it was non-zero. Just a guess, though.

I have a Fidelity debit card which is used for travel abroad. Fido sends me an email warning it will deactivate the card if it hasn’t been used in 12 months. So, from their perspective, one transaction will do.

A comment on balance. You can pay the card in full each month, yet the CC company can report a balance to credit agencies. They report on a specific calendar day, not on payment day.

Right, keeping it active with the issuer just needs a transaction and balance timing doesn't matter. It looks like the date the balance is reported varies, but if I run right home from the gas station and pay it, there's little chance anything but zero will be reported.

That's my understanding as well. It seems like for credit reporting purposes you would want to show a balance. However, maybe it is just the ratio of credit used to credit available, in which case it really wouldn't matter. Personally, if I cared enough to do one transaction a year, I'd find out what day the balance gets transferred and let that get captured before paying it off.

I did the research and it's basically a reflection of the statements. I just wonder if the ratio is figured with all cards evenly, or if ones that haven't been used get less weight.

It doesn't matter when the bill came. Credit card issuers report balances to the credit agencies at a certain date during the month, so your balance will show on your credit report as of the date that it is reported to the credit agency, not when the statement came. They are probably not the same date.

The reporting date looks like the statement date for AMEX, but it could be another date too for other accounts. But if I pay it off to zero balance "too quickly" the date doesn't matter since chances are slim it would report anything but a zero.

This. I used to play the "use it or lose it" game for a while and got tired of trying to keep up...so I stopped. Of the 15 or so cards that I have had for a few years but never use, 4 have been closed. Each time, I took a credit "hit" of 5 or less points that recovered the following month....

So the issuers closed a few of them. I wouldn't care if they did...good info on the small impact to your score.

As far as I know, most report whatever the balance is on the statement closing date. At least that has been my experience with a LOT of credit cards over the years.

Yeah, that's what I saw in my little poking around.

Doesn't work that way for me. I always pay my credit card off every month, but it has a reported balance. The amount reported is from you statement so if paid off before statement is cut then it will report 0. However that has nothing to do with the bank showing last activity, that should still accomplish what OP wanted. For me, I find that using cards once every other year is more than enough to keep card 'active'.

Every other year has been enough...that would make it pretty easy to keep them open.