What Happens to Credit Score When You Stop Using Credit?

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WEL
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What Happens to Credit Score When You Stop Using Credit?

Post by WEL »

My past: I borrowed money for college. As soon as the loan grace periods ended, I paid each loan off in full. This means once they started charging interest, I washed my hands of my debt. That is the only debt I have ever taken on.

My Present: The closest I get to using credit card is running my debit card as a credit when making the minimalist purchases. Also, I open a few bank accounts each year it seems but I check first to see if they pull credit. I want to dodge hard pulls.

My Future: What will my score look like if I continue this lifestyle? Will my score remain high because it is currently high? Or, will my score drop over time due to lack of use?

To give you a frame of reference, I graduated college about 2 years ago.

Thank you for your time!

-William
wander
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Re: What Happens to Credit Score When You Stop Using Credit?

Post by wander »

If you don't use the credit card the credit card company may close your account.
obgraham
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Re: What Happens to Credit Score When You Stop Using Credit?

Post by obgraham »

Why are you obsessed with avoiding credit enquiries?

It's one thing to want to avoid debt. Commendable if you can. But never entering any transactions just because you don't want credit pulls?
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cflannagan
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Re: What Happens to Credit Score When You Stop Using Credit?

Post by cflannagan »

obgraham wrote:Why are you obsessed with avoiding credit enquiries?

It's one thing to want to avoid debt. Commendable if you can. But never entering any transactions just because you don't want credit pulls?
Yep this seems a bit odd. Reminds me of this FallWallet post http://www.fatwallet.com/forums/finance/1149278/

Over the years, "hard pulls" does almost nothing to my credit score (not least anything that I really noticed). I think the fear of hard pulls putting a possible dent in credit score is somewhat overhyped.
Topic Author
WEL
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Re: What Happens to Credit Score When You Stop Using Credit?

Post by WEL »

I thought my comment about credit pulls may derail this topic...

Really I just want to know what will happen to my credit since I don't use it for anything. Does it stay the same, get better, or get worse.

I'm trying to satisfy my curiosity here, I'm not trying to get too scientific about it all.
2stepsbehind
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Re: What Happens to Credit Score When You Stop Using Credit?

Post by 2stepsbehind »

WEL wrote:I thought my comment about credit pulls may derail this topic...

Really I just want to know what will happen to my credit since I don't use it for anything. Does it stay the same, get better, or get worse.

I'm trying to satisfy my curiosity here, I'm not trying to get too scientific about it all.
Why would it get better? --you aren't providing new data. My guess is it stagnates or it dips slightly. Whats the point of a high credit score if you don't use credit?
Last edited by 2stepsbehind on Fri Aug 09, 2013 11:06 pm, edited 1 time in total.
Topic Author
WEL
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Re: What Happens to Credit Score When You Stop Using Credit?

Post by WEL »

2stepsbehind wrote:
WEL wrote:I thought my comment about credit pulls may derail this topic...

Really I just want to know what will happen to my credit since I don't use it for anything. Does it stay the same, get better, or get worse.

I'm trying to satisfy my curiosity here, I'm not trying to get too scientific about it all.
Why would it get better? --you aren't providing new data. My guess is it stagnant or it dips slightly. Whats the point of a high credit score if you don't use credit?
To satisfy my curiosity. Plus I may consider taking a mortgage in the future.
2stepsbehind
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Re: What Happens to Credit Score When You Stop Using Credit?

Post by 2stepsbehind »

what are your current credit score(s)? My guess is they may not be high enough for the best available rates given the thinness/lack of diversity of your file.
rec7
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Re: What Happens to Credit Score When You Stop Using Credit?

Post by rec7 »

Are you planning on buying something big like a house or car soon? That is the only time I would worry about a hard pull. My score went down 5 points the last time I did a hard pull.
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telemark
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Re: What Happens to Credit Score When You Stop Using Credit?

Post by telemark »

After a few decades my score did drop to zero. It may not have been very high in the first place. I didn't notice until I tried to open a savings account and got turned down. I don't know how rapid the effect is.
The Wizard
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Re: What Happens to Credit Score When You Stop Using Credit?

Post by The Wizard »

Your score gets worse if you don't use credit of some sort; this is no mystery.
Using a credit card weekly and paying it in full each month should be enough to keep you "visible" with a decent score...
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frugaltype
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Re: What Happens to Credit Score When You Stop Using Credit?

Post by frugaltype »

WEL wrote:Also, I open a few bank accounts each year it seems but I check first to see if they pull credit.
Why are you opening a few bank accounts a year?

This all seems kind of obsessive. If you could afford to pay off your student loans immediately, do you even need credit?
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Rainier
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Re: What Happens to Credit Score When You Stop Using Credit?

Post by Rainier »

Most people with good credit never think about their credit. They don't worry about accounts, too few, too many, etc.

Just pay your bills on time and stop worrying about it.
YttriumNitrate
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Re: What Happens to Credit Score When You Stop Using Credit?

Post by YttriumNitrate »

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Last edited by YttriumNitrate on Sat Mar 12, 2016 11:40 am, edited 1 time in total.
The Wizard
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Re: What Happens to Credit Score When You Stop Using Credit?

Post by The Wizard »

YttriumNitrate wrote: Supposedly, your credit score gets listed as 0 or indeterminate if you close all your credit cards, all your lines of credit, and avoid any type of debt for long enough. While he's generally panned on this site for his investing advice, Dave Ramsey is a great resource for all things relating to fanatically avoiding debt.
Avoiding debt is well and good, but having a credit card makes travel-related expenses much easier. Debit cards don't work quite as well for things like car rentals...
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Spirit Rider
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Re: What Happens to Credit Score When You Stop Using Credit?

Post by Spirit Rider »

The Wizard wrote:Your score gets worse if you don't use credit of some sort; this is no mystery.
Using a credit card weekly and paying it in full each month should be enough to keep you "visible" with a decent score...
This is a common misperception. Unless you are in the early stages of building credit, there is no need to "actively" use the card. From Fair Issac, as long as you use the card periodically to prevent it from being closed for inactivity, you will get the full credit score benefit of its age, on time payments, and low utilization.

I have several cards that were acquired over the years. I use them once every six months to a year to keep them active. There is no benefit to closing them and it would negatively affect my average age and utilization if I closed them.
scrabbler1
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Re: What Happens to Credit Score When You Stop Using Credit?

Post by scrabbler1 »

WEL wrote:My past: I borrowed money for college. As soon as the loan grace periods ended, I paid each loan off in full. This means once they started charging interest, I washed my hands of my debt. That is the only debt I have ever taken on.

My Present: The closest I get to using credit card is running my debit card as a credit when making the minimalist purchases. Also, I open a few bank accounts each year it seems but I check first to see if they pull credit. I want to dodge hard pulls.

My Future: What will my score look like if I continue this lifestyle? Will my score remain high because it is currently high? Or, will my score drop over time due to lack of use?

To give you a frame of reference, I graduated college about 2 years ago.

Thank you for your time!

-William
I see a lot of myself in you (when I was in my 20s, a long time ago!), as one who rarely uses credit. But it is good to have around as a safety net in case you need to make a large purchase, travel out of town (i.e. hotel, rental car), or buy something on line. Yes, these things can usually be done with a debit card but if you don't keep a lot of money in a checking account then you could exceed your limit.

Many people use their credit cards to get cash-back and other perks. Even though I recently opened one which offers cash-back, I opened it mainly because I can pay it electronically (from the same bank I have my checking account at) and from home if I want to. I was told my credit score was just under 800 and I have not had any real debt since 1998 when I paid off my mortgage.

Once in a while, I have been able to get a discount on a purchase from a department store if I opened up a credit card with them. As soon as the card arrived, I cut it into pieces and threw it out, having no need for another card.

My advice - get a credit card with no annual fee. Don't worry about the interest rate if you will always pay off any balance in full (which it appears you would do). Any perks such as cash-back will be gravy but don't make it a requirement. When something arises every so often (even once every two or three months) and you need to use it, it will be there. If the card's limit is too low, maybe you can get it raised after a while with a good history of using the card. I recall my long-time card ahs had its limit raised often in the 24 years I have had it (and without having to ask for it, either).

My two cents.
Mudpuppy
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Re: What Happens to Credit Score When You Stop Using Credit?

Post by Mudpuppy »

Running your debit card through as a credit card has absolutely no effect on your credit score. It just changes the path the transaction takes to land at your bank account. Debit card activity does not get reported to the credit bureaus, regardless of which transaction method you choose at the register.

If you have no credit cards or loans when your student loans age off the report, your score will drop to 0 or indeterminate, as other have reported. The best way to avoid this is to get a no annual fee rewards credit card now while your student loans are still on your report. Use that card instead of your debit card and pay it off every month. Get an account on the web interface to track your transactions and pay your bills.

Credit cards have slightly better fraud protections than debit cards (your money stays in your account during fraud disputes with a credit card, instead of in the bank's possession as with fraud disputes for debit cards). Most credit cards (and pretty much all rewards cards I've seen) will not charge interest if you pay your balance off in full each month. And you'll get the rewards to boot.

Just remember not all credit is universally bad. It's how people use credit that get them into trouble. If you treat your credit card exactly like you treat your debit card (only buy things you can pay off right then and there), it's actually a pretty fiscally savvy way to use credit.
katsmeow
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Re: What Happens to Credit Score When You Stop Using Credit?

Post by katsmeow »

Your credit score will go down and be less than it would have been had you been using an occasional credit card (it is fine to pay it off each month). First, my understanding is that your credit score is better if you use a mix of types of credit. If all you have is a paid off student loan you won't get that. Second, eventually that paid off student loan will drop off your credit report (most positive things drop off in 10 years) and you will ultimately not have enough on your report to generate a score.
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