Does Your Credit Score Go Down If You Don’t Use Your Credit Card?

Many individuals wonder if an unused credit card negatively impacts their financial standing. The effect of not using a credit card is not straightforward, as various elements of your credit profile come into play. Understanding how these factors interact is important for maintaining a healthy credit score.

How Inactive Credit Cards Affect Your Score

Not actively using a credit card does not directly lower a credit score. However, it can indirectly affect your score through several mechanisms. One significant indirect impact relates to your credit utilization ratio. If an issuer decides to close an inactive credit card account, your total available credit across all cards decreases.

For example, if you have $10,000 in total credit limit across several cards and one with a $3,000 limit is closed, your total available credit drops to $7,000. If you maintain the same outstanding balances on your remaining cards, your credit utilization ratio will increase, potentially lowering your score.

Another indirect effect involves the length of your credit history. When a credit card account, especially an older one, is closed—either by you or the issuer due to inactivity—it can shorten the average age of all your credit accounts. Credit scoring models consider the average age of your accounts as a factor, with a longer history viewed more favorably.

Credit card issuers may close an account due to inactivity without advance notice. While the Credit Card Act of 2009 requires 45 days’ notice for major changes to account terms, this typically does not include inactivity closures. Policies for inactivity vary among issuers, ranging from a few months to several years before an account might be closed.

Understanding Key Credit Score Factors

Credit scores are complex calculations derived from several components of your financial behavior, each weighted differently. Payment history is the most impactful factor, accounting for 35% to 40% of a FICO Score. Consistently making on-time payments demonstrates financial responsibility and helps build a strong credit profile. Conversely, late payments, especially those 30 days or more overdue, can significantly harm your score.

The amount of debt you owe, specifically your credit utilization ratio, is another significant factor, representing about 30% of your credit score. This ratio compares your total credit card balances to your total available credit. Lenders prefer to see a credit utilization ratio below 30% to indicate responsible credit management. A higher ratio can suggest an elevated risk to lenders.

The length of your credit history, which includes the age of your oldest account, newest account, and the average age of all accounts, comprises about 15% of your score. A longer credit history with positive activity indicates a more stable credit profile. The types of credit you use, known as your credit mix, contribute approximately 10% to your score. Having a mix of revolving accounts, like credit cards, and installment loans, such as mortgages or auto loans, can demonstrate your ability to manage different forms of credit responsibly.

New credit inquiries and recently opened accounts make up the remaining 10% of your score. Each time you apply for new credit, a hard inquiry is placed on your credit report, which can cause a small, temporary dip in your score. Opening multiple new accounts in a short period can have a more pronounced negative effect, as it may signal higher risk to lenders. This impact lessens over a few months, and the inquiry remains on your report for two years.

Managing Your Unused Credit Cards

When deciding what to do with credit cards you no longer actively use, strategic considerations can help preserve your credit score. Keeping older, unused credit cards open is beneficial, particularly if they have a high credit limit and no annual fees. This practice helps maintain a lower overall credit utilization ratio and contributes positively to the length of your credit history. To prevent accounts from being closed due to inactivity, making a small purchase at least once every few months, such as a streaming service subscription or a small retail item, and then paying it off immediately, can keep the card active and reported to credit bureaus.

There are specific situations where closing a card might be a reasonable option. If a card carries a high annual fee and does not offer sufficient benefits to justify the cost, or if the card tempts you to overspend, closing it could be considered. However, closing an account, especially an older one, can lead to an immediate increase in your credit utilization ratio and a reduction in the average age of your accounts, which could temporarily lower your score. It is advisable to pay off any balance in full before closing an account.

Regardless of whether you use a credit card regularly, it is prudent to monitor all open accounts periodically. Regularly checking statements or online accounts for cards, even unused ones, helps guard against fraudulent activity or unexpected charges. The Credit Card Act of 2009 banned inactivity fees.