Q: I just received a note from my credit card company saying they won’t renew my cards when they expire.
I will go talk to my local credit union, but I assume the reason is that I have been paying the bill off completely every month for several years now.
I use a credit card regularly for my everyday purchases, so it is not a dormant account. I always pay my bills on time, as is reflected in my great credit score (830-plus).
I would like to keep an active credit card, in case of an emergency. Would you suggest I start not paying it off at least once in a while, so they make some money in finance fees from me? Is there another option? Are the costs that I will pay in finance fees worth it to me to keep my good credit score?
A: What a pain. I don’t know why your card got canceled. Cancellations were more common several years ago during the financial meltdown.
I guess you could fight it, but why reward the issuer with your business? You’ve done everything right with your credit card. You use it. You have kept a healthy gap between your balance and your credit limit. You paid the bill off on time and in full. I don’t think you’ll have difficulty getting another credit card with your financial history, especially if you go to a credit union or community bank.
By the way, I would look at your credit reports to make sure everything is on the up-and-up. By federal law, you can get a copy of your credit report from each of the three main credit bureaus for free once a year. There is only one authorized provider of the service, www.annualcreditreport.com.
Now to the heart of your question: Is it worth it to carry a balance and pay finance fees on your credit card?
Simply put, no. For a good credit score all you have to do is use the card on a frequent basis and keep the amount you borrow on the card low relative to your credit limit.
The credit-scoring companies — the main one is Fair Isaac — don’t care if you carry a small balance or pay it off in full every month. So, from a personal-finance point of view it pays to get rid of the balance every month.
I know these are your habits already. I would maintain them, rather than pay unnecessary charges. You’ll continue to have a good credit score.
By the way, no one really has a single credit score; it fluctuates, depending on when the credit snapshot is taken, when new information is added, and old information is deleted or declines in significance.
Fact is, you’ll have a good credit score over time by paying off loans in a timely manner. Again, the key is maintaining good money habits.