Does Not Using Your Credit Card Hurt Your Score?

Credit cards serve as powerful financial tools, yet managing them, even when unused, can be a source of confusion. Credit card inactivity can have indirect consequences for your financial health. This article explores how an unused credit card might influence your credit score and provides strategies for effective management.

How Inactivity Affects Your Credit Score

Credit card inactivity does not directly harm a credit score, but its indirect consequences, particularly through potential account closure, can be significant. Credit scoring models, such as FICO and VantageScore, evaluate several factors, with credit utilization and the length of credit history being prominent.

Credit utilization, the amount of credit you are using compared to your total available credit, is a major component of your credit score, accounting for about 30% of a typical FICO score. Keeping an open, unused credit card with an available credit limit contributes to your total available credit. If this account remains open, it helps maintain a low utilization ratio.

However, if an inactive card is closed, your total available credit decreases, which can cause your credit utilization ratio to increase if you carry balances on other cards. For example, if you have $10,000 in total available credit across several cards and use $2,000, your utilization is 20%. If a card with a $3,000 limit is closed, your total available credit drops to $7,000, and your utilization on the remaining cards rises to nearly 29%, potentially impacting your score.

The length of your credit history also plays a role in your credit score, typically making up about 15% of a FICO score. This factor considers the average age of all your open credit accounts. Older, unused accounts contribute positively to this average, demonstrating a long history of managing credit. If an inactive account, especially an older one, is closed, it can eventually reduce the average age of your accounts once it falls off your credit report. This can be particularly impactful for those with a shorter overall credit history, as it reduces the longevity reflected in their credit profile.

While payment history is another significant factor in credit scoring, an unused card does not generate new payment activity. This lack of new activity does not directly hurt your score if the account stays open, but it also means you are not building additional positive payment history. Lenders also consider credit mix, which assesses your ability to manage different types of credit, such as revolving accounts and installment loans. The closure of a single inactive credit card generally has a lesser impact on credit mix unless it is your only credit card account. The primary concern with credit card inactivity arises from the risk of account closure, which can subsequently affect your utilization and the average age of your credit history.

Risk of Account Closure

A significant consequence of prolonged credit card inactivity is the risk of the card issuer closing the account. Credit card companies operate as businesses and incur costs to maintain active accounts, even those not being used. If a card is not generating revenue through transaction fees or interest from purchases, it becomes less profitable for the issuer to keep it open. Issuers also manage risk and may close inactive accounts to reduce their overall exposure.

The period of inactivity that triggers an account closure varies widely among issuers, ranging from as little as six months to two or three years. There is no universal standard, and policies can differ based on the card product and the issuer’s discretion. For example, some companies may be more lenient with store cards, understanding they are used less frequently than general-purpose credit cards.

Card issuers are generally not required to notify cardholders before closing an account due to inactivity. While the Credit Card Act of 2009 mandates notice for major changes to account terms, it does not typically include notification for account cancellations due to inactivity. Some issuers may send a warning, allowing the cardholder to make a small purchase to keep the account open. If an account is closed, it can immediately reduce your total available credit, which can increase your credit utilization ratio. It also eventually impacts the average age of your credit history, especially if the closed account was one of your oldest.

Strategies for Managing Unused Credit Cards

To prevent the negative consequences of credit card inactivity, proactive management is beneficial. A simple strategy is to make occasional small purchases on the card and pay them off immediately. Using the card once every few months, perhaps for a coffee or a small online purchase, is typically sufficient to keep the account active. This demonstrates ongoing use to the issuer without incurring debt or interest charges.

Another convenient approach involves setting up a small recurring bill to be paid automatically on the card, such as a streaming service subscription or a phone bill. It is important to also set up an automated payment from your bank account to pay the credit card balance in full each month, ensuring timely payments and avoiding interest. This method keeps the card active reliably without requiring manual intervention.

It is advisable to keep older, unused accounts open, especially if they do not have an annual fee. These accounts contribute positively to the length of your credit history and provide a larger pool of available credit, which helps maintain a low credit utilization ratio. Closing such accounts can inadvertently shorten your average credit age and reduce your total available credit. Regularly monitoring your credit reports is also a good practice to ensure that inactive accounts remain open and to detect any unexpected closures. This allows you to address any issues promptly and maintain a healthy credit profile.