If You Have a Credit Card and Don’t Use It, What Happens?
Understand the full picture of what happens when you have a credit card but don't use it. Learn about its financial and account status.
Having an unused credit card is a common situation, often raising questions about its financial implications. While it might seem harmless, its presence can subtly influence various aspects of your financial profile. Understanding what happens when a credit card is left dormant can help in making informed decisions about your credit accounts.
Impact on Your Credit Score
An open, unused credit card can positively influence your credit score, primarily by affecting your credit utilization ratio. This ratio compares the amount of credit you are using to your total available credit across all accounts. An unused card contributes to your overall available credit, which can lower this ratio if you carry balances on other cards, thus signaling responsible credit management to lenders.
The length of your credit history plays a role in credit scoring. An older, unused card contributes favorably by helping maintain a longer average age of accounts, which is generally viewed positively by credit scoring models. Accounts typically remain on your credit report for seven to ten years even after closure, but their positive impact on average age diminishes over time.
Having diverse types of credit, known as credit mix, can be a minor factor in your credit score. An unused credit card can contribute to a healthy credit mix by demonstrating your ability to manage revolving credit. While credit mix is generally less impactful than utilization or history length, it still contributes to a comprehensive credit profile.
Issuer-Initiated Account Closure
Credit card issuers may close an account due to prolonged inactivity, as these accounts generate no revenue for the bank. Inactivity is a primary reason, but policy changes or a perceived increase in cardholder risk can also lead to closure. Issuers are generally required to provide notice before closing an account due to inactivity, often through a statement message, email, or letter, typically 30 to 60 days in advance.
When an account is closed by the issuer, it can impact your credit score by reducing your total available credit. This reduction can cause your credit utilization ratio to increase if you carry balances on other cards, potentially lowering your score. For example, if total available credit drops from $10,000 to $6,000, a $2,000 balance would see utilization jump from 20% to 33%.
A closed account eventually falls off your credit report, which can shorten the average age of your credit accounts over time. While closed accounts with a positive payment history can remain on your report for up to 10 years, their influence on the average age of accounts diminishes as they age. This gradual shortening of your credit history can negatively affect your credit score in the long term.
Potential Fees and Charges
Even an unused credit card can incur annual fees. Many premium or rewards cards charge an annual fee ranging from $50 to over $500, regardless of card use. This fee is typically billed once a year and is a contractual obligation of the cardholder.
While less common, some credit cards or issuers may impose inactivity fees if the card remains unused for an extended period, such as 12 to 24 months. These fees cover administrative costs for maintaining a dormant account. Review the cardholder agreement to identify any such charges.
Missing a payment for an annual fee or any other charge can result in late payment fees. These fees typically range from $25 to $40 for each missed payment. A missed payment can be reported to credit bureaus, potentially damaging your credit score. Regularly reviewing statements for any applicable fees is a prudent practice.