The U.S. Census Bureau estimates that 77 percent of American adults, or 181 million people, had open credit card accounts in 2010. Open cards affect your finances in various ways because they provide access to spendable funds and generate activity that shows up on your credit reports and gets used for credit score calculations.
A credit card is a way to access a revolving loan balance. You use the card, or the account number and expiration date printed on its front, to tap into a predetermined credit line. You may use the account to buy things or purchase services from anyone who accepts that particular credit card brand. General cards, like MasterCard, Visa, Discover and American Express, are widely accepted at various merchants, while some credit cards are tied to a specific chain of stores or gas stations.
Open Credit Cards
An open credit card balance can run anywhere from zero up to your credit limit. The account is open as long as it is in good standing, even if you cannot make new purchases because you reached your spending limit. You free up available credit as you make payments every month, allowing you to spend more money if you wish. Your bank may choose to raise your credit line automatically, or you can request a higher limit if you have an excellent account history.
Your Equifax, Experian and TransUnion credit bureau records list your credit card account information, including whether the cards are open or closed. Open cards show the total credit limit, current balance, previous high balance and payment dates. Closed cards show a zero balance if they are paid off and a zero credit line. Open accounts stay on your credit reports indefinitely, while closed credit cards in good standing fall off within 10 years and negative information disappears after seven years, according to Maxine Sweet of Experian.
Open credit cards directly affect your credit score. You maintain a good credit rating by always paying them on time, according to the FICO scoring firm, because payment status is 35 percent of your score. You also help your score if you only spend 30 percent or less of your open credit lines. The ideal amount is 10 percent, MSN Money columnist Liz Pulliam Weston advises, and your score is hurt if you exceed 30 percent. Closing credit cards hurts this balance because closure eliminates the credit line. Your bank will close your account involuntarily if you stop making payments or it believes you are a high risk based on your credit reports.
Banks may not charge you a fee or penalty for open but unused credit cards, according to the Board of Governors of the Federal Reserve System. Card issuers do have a right to close inactive accounts, so make occasional charges to generate activity. Buy something cheap every few months and pay the bill in full so you pay no interest.