Welcome to the most misunderstood aspect of credit scoring! This code is the source of more misinformation and poor advice than any other. Even some bankers and real estate reps will tell you that having no recent revolving balances can be corrected by carrying debt of around 30% of your credit limits. This advice is dead wrong.
| “No Recent Revolving Balances” | Credit Score Risk Factor Codes |
| Equifax | 24 |
| Experian | 24 |
| TransUnion | 24 |
| NextGen | G6 |
It is true that having dormant credit card accounts can actually cause you to lose a few precious points on your credit score. Credit bureaus deduct points for consumers that have no recent revolving balances reported on their credit reports.
There are two primary reasons why a lack of recent balance information on revolving accounts can impact your credit scores.
- Recent activity is a greater predictor of risk. A prospective lender may care about your credit history going back 7 years or more, but they are most interested in how you have managed credit accounts most recently. This is not as detrimental a factor as having no recent revolving information. It just means that you have not had a balance reported recently, which means that the revolving information on your credit report is less substantial without an actual balance being reported.
- Dormant credit accounts cost lenders money. Lenders make money by charging interest on your balances. If you have not had a balance on your revolving credit accounts in over a year, you definitely can see a small drop in your credit scores. It simply reflects that you are less desirable as a borrower because you don’t use your credit very often. The fact that you are keeping open lines of credit that you don’t use may be seen as a risk factor by itself, since most people who experience job loss turn to credit cards to get by once they have exhausted their limited savings.
Do you Need to Use your Cards?
To clarify, this risk code should not imply that you need to go on a spending spree and rack up balances on your credit card and store card accounts. If you do that, you would actually cause more damage to your scores.
Simply put, your revolving account issuers want you to use your accounts periodically. A balance is reported every month that you make charges on your account, even if you pay the balance off in full each month. You do not have to roll the balance over to the next month. If your mortgage broker suggests that you need to carry a balance on revolving accounts, they have been misinformed. You only need to have a balance reported, which occurs even if the account is paid off each month. In fact, exceeding a 10% utilization ratio on your cards will trigger a separate code that will cost you even more points.
You should be prepared to use your accounts periodically in order to keep them active. How often you need to use them can vary by creditor. You should expect to use an account at least once a year at a minimum just to keep the account open. In order to avoid this risk code being applied to your credit reports, you should try to show some activity at least every 4-6 months.
Some card issuers have begun to apply new rules to certain accounts to ensure that they are used regularly. Citi began charging annual fees to certain accounts that did not show at least $2,400 in charges over a 12 month period. If you don’t use it, you could lose it.
Fair Isaac and the credit bureaus do not specify how recent the balance needs to be reported in order to avoid this risk code. As long as you make charges to a revolving account at least once every 4-6 months, your credit report should not include this reason code.
Even if this reason does show up, the consequences are fairly minor. While we cannot say how many points could be effected by it, we can speculate that the impact is probably fairly small. Besides, how can having no credit card debt be a bad thing?
No recent revolving balances is credit bureau risk score reason 24. It is listed as code G6 on NextGen scores. 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!
Favorite quote:
"The democracy will cease to exist when you take away from those who are willing to work and give to those who would not."
Thomas Jefferson
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