When the Bank Closes Your Credit Account

Q I received a notice from Capital One that it is closing my credit card account because of inactivity. If the company closes the account, will it hurt my credit score?

AWhether you or the issuer cancels an account, the effect on your credit score is the same -- and it's not good. Fair Isaac, the firm that created FICO credit scores, calculates your score based on five criteria: your payment history, the amount owed (which includes the percentage of total available credit you are using), length of credit history, new credit and types of credit used.

The "amount owed" makes up nearly one-third of your score. So if an account is closed, your total available credit is reduced by the amount of that card's credit limit. If you have only one or two cards, that can mean a significant increase in the percentage of available credit you are using. If the percentage rises to more than 50 percent, your score will drop.

In today's tough economic times, banks are looking to limit their potential losses by examining inactive accounts after 12 months instead of waiting 18 months or two years, says John Hall of the American Bankers Association.

Your best bet, recommends Barry Paperno, credit operations manager at Fair Isaac, is to use your card every six months -- or quarterly to be safe -- so it isn't canceled.