Carrie Schwab Pomerantz
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Dear Carrie: I have one credit card and two debit accounts. I don't often use the credit card, but I left it open to keep a credit history. Now, my credit card company has announced a $60 annual fee, refundable if the card is used for $2,000 (plus) annually. I'm inclined to cancel the card to avoid the yearly fee because I don't use the card and dislike their customer service -- but is that a mistake?

Do I need to keep the account open and just get in the habit of using it? Or can I replace it with another credit card that has no annual fee? Thanks for your advice. -- Meg

Dear Meg: There's no doubt that since the Credit CARD Act of 2009 took effect, there's been a higher percentage of credit card companies that are re-establishing annual fees. While the act offers several consumer protections, it has a potential negative impact on a bank's bottom line. So, it's not surprising that we've seen an increase in credit card fees. That said, there are still no-annual-fee cards available to consumers with stellar credit ratings. The better your credit rating -- the better the possible deal you'll get. If you're unhappy with your current credit card issuer, go ahead and shop around for a card with better terms and service.

But you're right that there is a potential negative impact in closing one account and opening another, depending on how much you owe and how much credit you have open. However, in your case, I think the bigger issue is how using your credit -- or not using it -- can affect your credit history and rating.

WHY USING CREDIT IS IMPORTANT

If you haven't used your credit card much, chances are you don't have much of a credit history. Just having a credit card account open isn't enough. It's how you use your credit and manage your debt that matters. And that means staying well within your credit card limit, keeping a low balance and paying your bills on time.

This good use of credit will be reflected in your credit rating or "score," which is the summation of your credit history. This score is a number that lenders use to determine how likely you are to make your payments on time. It plays a big part in your life and can follow you for years, affecting your ability to get other types of credit in the future, such as a car loan or mortgage.

So, if you were happy with your current credit card company, I'd suggest you use your card up to the $2,000 threshold to avoid the annual fee, never miss or be late with a payment, and build a good credit history. Pay your balance off every month, and it won't cost you a penny more. Also, your long-term relationship with this company would be a plus on your credit score.

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Carrie Schwab Pomerantz

Carrie Schwab Pomerantz is a Motley Fool contributor.

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