Do You Have to Pay for a Credit Card if You Don’t Use It?
Uncover the financial realities of credit card ownership, even for inactive accounts. Learn what charges apply and how to responsibly manage your cards.
Credit cards offer convenience and serve as valuable financial tools, providing access to credit and various benefits. However, owning a credit card also comes with potential financial obligations beyond purchases or balances. Understanding these costs, especially when a card is not actively used, is important for managing personal finances. This article clarifies the different types of charges that may apply to credit cards, focusing on those incurred even without card usage.
Annual Fees and Inactivity Charges
An annual fee is a common charge that applies regardless of card usage. This recurring fee is typically billed once a year by the credit card issuer for holding the card and accessing its benefits. These benefits can include rewards programs, travel perks, or concierge services. The fee is usually charged automatically to the account on a specific date, often coinciding with the account opening anniversary. Annual fees can range from zero for basic cards to several hundred dollars for premium cards offering extensive benefits.
Inactivity charges represent another type of fee that can be levied on an unused credit card. These fees are triggered when an account shows no transaction activity, such as purchases, balance transfers, or cash advances, for a specified period. While less common today due to consumer protection regulations, they can still exist for some card products or under specific circumstances. If applicable, an inactivity fee might be assessed after a period ranging from six to twelve months of no card usage.
Annual fees and inactivity charges are distinct because they are not contingent on the cardholder making new purchases or carrying a balance. An annual fee is a fixed cost for card membership, irrespective of activity. Similarly, an inactivity fee is specifically imposed due to a lack of activity, making them primary concerns for cardholders who possess a credit card they do not intend to use.
Understanding Other Credit Card Charges
Beyond annual and inactivity fees, other credit card charges generally require a specific action or transaction. For instance, a late payment fee is assessed when a cardholder fails to make at least the minimum payment by the due date. Federal regulations often cap these fees.
Foreign transaction fees apply when a card is used for purchases made in a foreign currency or outside the United States. These charges are a percentage of the transaction amount. Cash advance fees are incurred when a cardholder withdraws cash using their credit card, often a percentage of the amount advanced, plus immediate interest accrual.
Over-limit fees are charged when the account balance exceeds the assigned credit limit. Balance transfer fees are also transaction-based, a percentage of the amount transferred, and incurred only when a balance is moved from one credit card to another. If a credit card remains unused, these types of charges will not be applied to the account.
Managing Unused Credit Cards
When considering how to manage a credit card that is rarely or never used, cardholders have a few options, each with different implications. One approach is to keep the card open, especially if it has no annual fee and a long credit history. Maintaining older accounts in good standing can positively influence the average age of a cardholder’s credit accounts, which is a factor in credit scoring. This option also provides an emergency credit line, but requires the cardholder to remain vigilant for any potential changes to terms that could introduce fees.
Alternatively, a cardholder may decide to close the unused credit card account. This action definitively prevents any future annual fees or inactivity charges from accruing on that specific account. To close an account, the cardholder should contact the credit card issuer directly and explicitly state their intention to close the account. It is important to ensure that any outstanding balance on the card is fully paid off before initiating the closure process.
After requesting closure, it is advisable to obtain confirmation from the issuer that the account has been closed and reported as such to the credit bureaus. This confirmation can be provided in writing or through a final statement indicating a zero balance and closed status. While closing an account might slightly reduce the average age of credit history, it eliminates the risk of unexpected fees and simplifies financial management by reducing the number of open credit lines to monitor.