Is It Bad If I Don’t Use My Credit Card?

Many individuals acquire a credit card with good intentions, perhaps for emergencies or to build a credit history, only to leave it unused. While this approach might seem responsible, neglecting a credit card can lead to unexpected financial consequences. Understanding how credit card inactivity affects your financial standing is important for maintaining a healthy credit profile, including awareness of how credit scoring models assess inactivity and the potential for account closures.

Credit Score and Inactivity

A credit card that remains unused does not directly harm a credit score. However, its inactivity can indirectly influence several factors that determine your creditworthiness. An unused card might not contribute positively to your credit profile.

One significant factor is your credit utilization ratio, which compares the amount of credit you are using to your total available credit. If an inactive credit card has a substantial credit limit, its presence helps keep your overall utilization low. Should this card eventually be closed due to inactivity, your total available credit decreases, causing your utilization ratio to increase, even if your balances on other cards remain the same. A higher utilization ratio can negatively impact your credit score.

The length of your credit history also plays a role in credit scoring, accounting for approximately 15% of your score. An inactive credit card, particularly an older one, contributes to the average age of your accounts. If this card were to be closed, it could shorten the average age of your credit history, potentially affecting your score. Credit scoring models also consider your credit mix, referring to the different types of credit accounts you manage, such as installment loans and revolving credit. An inactive credit card still contributes to a diverse credit mix, and its absence, especially if it’s one of your few credit cards, could alter this aspect of your profile.

Account Closure and Its Effects

Credit card issuers may close inactive accounts for several business reasons. Maintaining an open account, even if unused, incurs costs for the issuer. They also have a finite amount of credit to extend and prefer to allocate it to active users who generate revenue through transaction fees or interest. If a card remains dormant for an extended period, the company might decide to close it. Issuers are not required to notify you before closing an account due to inactivity.

The closure of a credit card account can have immediate and noticeable effects on your credit profile. When an account is closed, the credit limit associated with that card is removed from your total available credit. This reduction can directly increase your credit utilization ratio, as your outstanding balances are now spread across a smaller pool of available credit. For example, closing an inactive card with a $3,000 limit could reduce your total available credit from $10,000 to $7,000, causing your utilization to jump from 20% to nearly 29% with a $2,000 balance. A sudden increase in this ratio can lead to a drop in your credit score.

The closure of an older account can also reduce the average age of your credit accounts. While closed accounts may remain on your credit report for up to 10 years, their closure can still impact the average age calculation, especially if it was one of your longest-held accounts. This shortening of your credit history can negatively affect your credit score over time.

Keeping Accounts Active

To prevent the negative repercussions of credit card inactivity, maintaining a minimal level of activity on all your cards is a practical approach. Making small, occasional purchases is an effective strategy to signal active use to the issuer. For instance, you could use the card for a single recurring charge, such as a streaming service subscription or a small monthly bill, and set up automatic payments to pay the balance in full each month. This ensures the card is used regularly without incurring interest charges or accumulating debt.

Setting up calendar reminders can help you remember to use less frequently accessed cards. Rotating usage among your cards ensures each one shows activity over time. Also, regularly review statements for all your credit cards, including those used infrequently. This practice helps in monitoring for any unauthorized activity or changes in account terms.

If you have concerns about a specific card being closed due to inactivity, contacting the card issuer directly can provide clarity. You can inquire about their inactivity policies and the suggested frequency of use to keep the account open. Maintaining even minimal activity demonstrates responsible credit management and can help preserve your credit history and overall credit health.