It is true that your credit scores can drop if you lack any recent activity on your bank-issued credit cards. There are a couple of primary reasons for this decline.
|“Lack of Recent Bank Revolving Information”||Credit Score Risk Factor Codes|
First, a prospective lender would find you less attractive of an applicant if you are not even using the accounts you have open already. If it costs a bank $20 just to open your account and issue a credit card in your name, they want to know that you will use the card enough to help them recoup their investment and earn a profit on top of that.
Second, credit bureaus reward your responsible use of credit by boosting your credit scores. More importance is placed on your recent credit history. Your habits over the last 6 months are vastly more important than your credit history from 6 years ago.
How Much Activity is Necessary?
This is actually a loaded question, since there are two answers depending on your needs. In terms of maximizing your credit scores, you should periodically use your major credit cards for charges. Utilizing an account at least once every 6 months should be sufficient, although every 3 months may provide a slightly greater boost. Since Fair Isaac and the major credit bureaus do not reveal the exact metrics, we can only speculate based on our experience with credit scoring.
There is also the topic of how much should be charged. We cannot provide a definitive answer on whether larger purchases or nominal purchases will give you more points, although it is believed that paying off higher balances will result in slightly more points than nominal sums. We can however warn you not to exceed 10% of your total credit limit on an account, since that can cost you precious points.
In terms of activity, there is a secondary issue that is outside the scope of credit scoring. Beginning in 2009, some creditors began evaluating accounts to determine if the cardholder was using the account enough for profitability. One specific example includes certain credit cards issued by Citibank. Citi changed the terms to require at least $2,400 in annual charges on the account to keep it open.
Several creditors began closing accounts due to inactivity as a way for reducing their overall risk exposure. The thinking was that those consumers would only use the account in a financial emergency, which carries a much higher risk of default than casual use.
Satisfying creditor and credit bureau desires for recent activity does not have to include making unnecessary or unplanned purchases. Instead, you can simply change the way you pay certain bills. Setting up automatic payments for cable or cell phone plans can help you demonstrate activity. This is a responsible approach to generating recent activity as long as you pay the balance off each month.
The most important aspect of this scoring code is to make sure that you do not charge more than you can pay off in any given month. The repercussions of carrying large balances or missing payments are much more severe and permanent than simply allowing your cards to go unused for an extended period of time. To avoid seeing code 15, simply use your cards periodically and repay the debt in full prior to the due date.
It should be noted that Code 15 refers specifically to major credit cards. It may still appear independent of Code 16 (lack or recent revolving account information) if your revolving accounts consist of store cards only.
A lack of recent bank revolving information is credit bureau risk score reason 15. NextGen scores also include this risk factor as code F5. For more information on credit scoring, see the complete list of credit score factors.
Long is a graduate of the University of North Carolina at Chapel Hill with a B.A. in Industrial Relations. He subsequently received his Certificate in Nonprofit Management from Duke University. His Certificate in Financial Planning was issued by Florida State University.
Long has achieved the Accredited Credit Counselor and Accredited Financial Counselor certifications through the Association for Financial Counseling, Planning and Education. Long originally achieved the Certified Credit Counselor designation through the National Institute for Financial Education.
In addition to years of nonprofit leadership, Long has been an innovator in the field of volunteer tax return preparation programs. He assists volunteer associations and nonprofit organizations who seek to integrate credit counseling and asset-building programs with free personal income tax preparation. His approach to using free credit reports as both an incentive and a screening tool for placement into asset-building programs has been shared with members of the National Community Tax Coalition, the EITC-Carolinas Initiative of MDC, Inc. and nonprofit groups across the Carolinas.
Long assists members of our armed forces in the Carolinas, Iowa, Rhode Island, Georgia and Germany with financial readiness. Please support our Soldiers, Marines, Airmen and Sailors!
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