Is It Bad to Get a Credit Card and Not Use It?

It is common for individuals to acquire a credit card and then find themselves not using it regularly. While keeping an unused credit card might seem harmless, several financial implications are worth understanding. Various factors come into play, from how it affects your credit standing to the issuer’s perspective on inactive accounts.

How Credit Card Inactivity Affects Your Credit Score

An open but unused credit card can positively influence your credit score, primarily by affecting your credit utilization ratio. This ratio measures the amount of credit you are using compared to your total available credit. An unused card contributes to your overall available credit, which can lower this ratio if balances on other cards are maintained at a reasonable level, generally below 30% of the available credit. A lower utilization ratio is viewed favorably by credit scoring models.

The average age of your credit accounts is another factor influenced by an unused card. Keeping an older, open account helps maintain a longer average credit history. A longer credit history demonstrates financial stability and experience managing credit, which can be beneficial for your credit score. While an unused card does not generate new payment history, it also avoids negative marks, assuming no balance is carried and no late payments occur.

Why Card Issuers Close Inactive Accounts

Credit card issuers may close accounts due to prolonged inactivity for several business reasons. Maintaining inactive accounts incurs operational costs for banks, even if no transactions occur. Issuers do not generate revenue, such as interchange fees from merchant transactions, from cards that are not used, making it less appealing to keep open.

Inactive accounts can also pose a risk management concern for financial institutions. They might be viewed as a dormant fraud risk, as a cardholder might not be regularly monitoring an account they rarely use, potentially delaying the detection of unauthorized activity. Issuers have a finite amount of credit to extend, and they prefer to allocate this credit to active cardholders who are generating revenue. Some issuers might close an account after as little as six months of inactivity, while others may wait two or three years, and they are not always required to provide advance notice.

Consequences of Account Closure

When a credit card account is closed by the issuer due to inactivity, it can have immediate and long-term impacts on your credit. The most significant effect is the reduction of your total available credit. This reduction can cause your credit utilization ratio to increase on your remaining active cards, even if your spending habits have not changed. An elevated credit utilization ratio can negatively affect your credit score.

Account closure also impacts the average age of your credit accounts. While a closed account typically remains on your credit report for several years, it eventually stops contributing to the average age of your active accounts. If the closed card was one of your oldest accounts, its removal from your active credit history can shorten your overall average age of accounts, potentially lowering your credit score. Losing an available credit line also means losing a potential financial safety net or convenience for certain transactions, such as car rentals or hotel reservations.

Managing Unused Credit Cards

To prevent negative consequences, consider strategies to maintain activity on credit cards you wish to keep. Making occasional small purchases, such as a streaming service subscription or a small amount of gas, and paying the balance immediately, can signal activity to the issuer. Alternatively, setting up a small recurring payment, like a utility bill, on the card and enabling automatic payments from your bank account ensures consistent usage without active management. It is prudent to regularly monitor statements for any inactive cards to detect potential fraudulent activity.

If you anticipate extended non-use, contacting the card issuer to inquire about their inactivity policy can provide clarity and potentially prevent unexpected closure. While it is beneficial to keep accounts open, especially older ones, voluntary closure might be considered in specific circumstances. This includes cards with high annual fees that no longer provide commensurate value or newer accounts where the impact on your credit history would be minimal. Any decision to close an account should be made after carefully evaluating its potential effect on your credit utilization and average account age.