If you’ve sworn off credit cards as a way to control your spending, think twice before cutting up your plastic for good. With major credit card companies shutting down dormant accounts, your credit score could take a big hit if one of your high-limit and long-term credit cards gets terminated.

Most companies review an account that’s been inactive for more than a year — meaning no charges or transfers during that time. The reason? It costs companies just to manage an account, even an inactive one.

With credit card companies like American Express (AXP Quote - Cramer on AXP - Stock Picks), Citibank (C Quote - Cramer on C - Stock Picks) and Chase (JPM Quote - Cramer on JPM - Stock Picks) all looking to cut costs, they’re choosing to either impose a maintenance fee or simply close the account down, sometimes with no advance notice. “We think it is unfair, but understandable in this market,” notes Linda Sherry, director of national priorities at Consumer Action, a national nonprofit consumer education and advocacy organization. “We recommend that consumers who are saving a card for a rainy day should use the card several times per year, and pay the balance back in full that month.”

Keeping your card (or cards) active provides more than just a backup in the event of unforeseen expenses; it also adds positive information to your credit history. And your credit history is the first place a lending officer looks when you apply for a loan. A good credit score will help you land the best rates on loans, while a low credit score will block you from all but the most expensive ones.

Your credit score is based on a number of factors, including your ratio of debt to available credit, and the length of your credit history. Having a high limit account closed would lower the amount of your available credit, potentially pushing your overall debt-to-credit ratio above 30%. Carrying debt beyond that 30% threshold can knock down your credit score by up to 100 points or more. The impact on your score could be even larger if the inactive card is one of your older accounts — about 15% of your credit score is based on the length of your credit history. (Find out more on how credit card debt can hurt your credit score.)

So if you’ve stashed some cards away, try to break it out every now and then for small purchases. If your card was recently cancelled, try contacting the company to see if they’ll reopen the account. If they won’t, consider applying for a new card in order to keep your debt-to-credit ratio at a healthy level. Or, better yet, pay down your existing accounts to reduce your debt. For the latest credit card offers, head to BankingMyWay’s credit card section.

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Retailers are offering deep discounts and ultra-low interest rates for credit cards. It’s a formula that lures many young people to use credit instead of cold hard cash. The dangers of bad credit are always there, but some East Texans are actually using charge cards to establish and build credit.

Credit is the payment of choice for more and more young people. Chuck Watkins works at Buckle in the Lufkin Mall. He, like many of his customers, uses a charge card to establish and build credit. “I absolutely had to have some credit starting out. For college kids, that’s the easiest way to go about building your credit for life, while you’re in school.”

Something Watkins said can be easy, if you follow some rules. “Definitely have a budget and keep up with your payments on time.”

Once you have built credit, it is increasingly harder to keep it–especially with bargain sales and lower interest rates.

Watkins said some of his friends are experiencing buyer’s remorse after their spending got out of control. “[They are] 23 years old. They have everything in their parents’ name and can’t do anything for themselves. They can’t even get an apartment.”

Credit Counselor Doniece Smith said a growing number young people are experiencing bad credit. It’s something you can fix using a free credit report. “It explains in detail what you did good, what you need to do, what you should have done. It’s specific to your credit report instead of speaking in generalities.”>>

Rebuilding your credit will take time and include setting measurable goals. “Contact each former creditor and find out what the balance is and what their terms and conditions are for pay-off. Pay if off, and then wait,” said Smith.

Those are tips Watkins said he has followed once before, however, his best advice came from his mom. “She always said never to spend the cash and the credit, it’s always has to be one or the other.”

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Cash-strapped consumers can expect a special delivery this holiday season: sweeping new rules on credit cards.

Federal regulators will unveil final rules within the next several weeks to restrict credit card practices seen as unfair or deceptive. Proposals would prohibit institutions from practices such as: increasing rates on an outstanding balance, except under limited circumstances; applying consumers’ payments over the minimum to maximize interest charges; and requiring a reasonable amount of time for consumers to make payments.

Consumers have spoken loudly in favor of curbing aggressive pricing. They’ve posted tens of thousands of comments on the Federal Reserve’s Web site, complaining about predatory lenders.

“Please stop credit card companies from committing unfair billing practices. … Honest people need an honest chance,” wrote Laura White in a comment on the Fed’s site.

Meanwhile, the credit card industry has reiterated concerns that the rules will damage its ability to manage risk, leading issuers to raise rates and cut available credit. Meredith Whitney, a prominent analyst and managing director of Oppenheimer & Co., agrees that the rules would tamp access to credit, and wrote recently in the Financial Times that the rules will lead to the “severe unintended consequence” of pulling credit from consumers to the tune of $2 trillion, or 40 percent of unused credit lines.

“With so many Americans relying on their credit cards as a major source of liquidity, it would be equivalent to a major pay cut,” Whitney wrote.

While there’s no crystal ball to peek at the rules before they are finalized, Ken Clayton, managing director of the American Bankers Association’s card policy council, expects that the Fed will “move aggressively.”

“What you’re going to see is an unprecedented change in the way consumers deal with their card companies,” Clayton said. “In light of the current economic uncertainties, it’s important that all of us understand the full impact of these regulations on consumers and the economy before we can understand (whether they are) successful.”

One point of contention regards the provision that would prohibit issuers from increasing the interest rate on outstanding balances. The regulators’ interim proposal allows for exceptions to this rule, such as when a minimum payment is not received within 30 days of the due date. The credit card industry has argued that the 30-day delinquency is too long, a position backed by the Office of the Comptroller of the Currency, the primary federal regulator of national banks, which account for almost 80 percent of U.S. credit card lending.

“We believe the proposed restriction is unnecessarily stringent and would severely curtail the ability of creditors to react to adverse changes in a borrower’s risk characteristics during the term of the account,” the OCC told the Fed in public comments. “The period should be long enough so that payment on the account is clearly late, for example, five days after the payment due date, and before a new credit cycle begins and the next periodic statement is prepared.”

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Excellent Credit (FICO: 750 - 850)

Excellent credit is the highest rating that you can get and has a 750+ FICO score. To achieve this score, you need to have managed your credit very well for at least 5 years. Some of the things you must have done include:

• Having a credit card with a credit limit of over $10,000
• Never declared bankruptcy
• Always paid off your bills on time and have never been late by 60 days
• You never been through a collection agency for collection of unpaid bills

Please check out Excellent Credit Credit Cards

Good Credit - Above Average Credit (FICO: 660 - 749)

Good credit requires a FICO score above 660 and below 749. To achieve this score, you need to have managed your credit fairly well for at least 3 years. Some of the things you must have done include:

• Having a credit card with a limit of over $5,000
• Always paid off your bills on time
• Never been late by more than 60 days on any credit card, medical bill, or loan payment in the last year

Please check out Good Credit Credit Cards

Fair Credit - Credit That Needs Some Improvement (FICO: 620 - 659)

Fair credit requires a FICO score above 620 and below 659. Some of the things you must have done include:

• Have a credit card
• Currently have a loan or had a loan in the recent past
• Credit limit on the credit card is less than $5,000
• Late in bill payment in the last 6 months

Please check out Fair Credit Credit Cards

Poor or Bad Credit - Limited Credit History (FICO: 350 - 619)

Poor or Bad credit requires a FICO score below 619. Some of the things you must have done include:

• Never had a credit card
• Had a credit card with low credit limits for less than a few years
• Have limited credit history because you are a student, or have recently moved to US etc.

Please check out Bad Credit Credit Cards

This part covers credit cards by Credit Quality (also known as Credit Score). If you want to read about credit cards by Card Type, then please see Part I of this post.

Credit Score is usually a numerical representation of an individuals credit risk based on historical information. Some of the elements that go into calculating a credit score are:

Payment History: e.g. paying bills on time, paying loans on time
Amounts Owed: Sum of open loan amounts, sum of credit limits on credit cards etc.
Length of Credit History: The longer the credit history the better. Of course, the history should be good.

Other factors also come into play but the above three usually have the highest weight in determining your credit score.

You can find more information about credit scores at Wikipedia, myFICO, Experian, Free Credit Report and a number of other websites.

Your credit score plays a very important role when getting approved for a credit card. It determines:

Credit Limit: The amount of credit you can get on your credit card
Regular APR: Your interest rate for outstanding balances, after any promotion periods expire
Promotion Period: Most credit cards offer promotions to new customers. For e.g. a promotion could be 0% APR for upto 12 months. If you have a low credit score, the 0% APR promotion will only be offered for 3 - 6 months.

You can find credit cards on nuuvoo.com, by Credit Quality. On the left hand navigation, the second menu box has links to credit cards by the following Credit Quality Types:

Excellent Credit: The credit cards shown in this category are meant for people with excellent credit i.e. the highest credit score. If you do not have Excellent Credit, do not apply for these cards as your application may be denied and could also affect your credit score.
Good Credit: The credit cards shown in this category are meant for people with Good Credit. These credit cards have good interest rates and you should also be able to avail their rewards programs.
Fair Credit: Fair Credit cards are meant for people with Fair Credit, typically a credit score in the range of 620 - 659. It is a good way to get approved for a credit card and start improving your credit score. Making your credit card payments on time will help you improve your credit score. Included in this Fair Credit category are credit cards for people who are “New to Credit” or where credit “Needs Improvement”. When reviewing credit cards, check the “Credit Needed” column for further information.
Bad Credit: These credit cards are meant for people with Bad Credit i.e. Credit Score less than 629. Credit Card issuers have started issuing credit cards for people with Bad Credit. You will typically pay higher interest rates, annual fees and may not get any rewards benefits. Prepaid cards are a great way to get started and start improving your credit score. Be sure to read all the terms and conditions before applying for a credit card.

Which ever credit card you decide to apply for, make sure you read the credit card offer details before applying. A denied application could affect your credit score. Also, making your payments on time will ensure that your credit score is not affected and can actually improve your credit score over time.