Is There a Penalty for Not Using a Credit Card?

Not using a credit card does not incur direct legal penalties. However, an inactive account can lead to various financial consequences. These indirect impacts primarily concern potential fees, effects on your credit score, and the risk of account closure by the issuer. Understanding these implications helps in making informed decisions about managing your credit cards.

Inactivity Fees

Inactivity fees are charges imposed by financial institutions when a credit card account shows no activity for a specified period. While once common, the Credit Card Accountability, Responsibility and Disclosure (CARD) Act of 2009 largely restricted these fees. The CARD Act banned inactivity fees on credit cards, though exceptions for gift or prepaid cards may exist. These exceptions often require at least 12 months of inactivity before a fee is charged, and only one fee per month.

Cardholders should review their specific cardholder agreements. While direct inactivity fees are rare for traditional credit cards today, certain older or specialized card products might still carry such clauses, subject to strict disclosure requirements. An annual fee will continue to be charged regardless of card usage. To determine if your card has any activity-related fees, consult your cardholder agreement or contact the issuer directly.

Impact on Credit Score

Not using a credit card, especially if it leads to account closure, can indirectly affect your credit score. A primary factor is your credit utilization ratio, which compares credit used to total available credit. When an unused credit card account is closed, your total available credit decreases.

This can cause your credit utilization ratio to increase if you carry balances on other cards. For example, closing a $5,000 limit card reduces your overall available credit, potentially raising your utilization percentage. A ratio above 30% can negatively impact your score.

The average age of your credit accounts is another factor influencing your credit score. Closing an old, unused credit card can shorten this average, particularly if it was one of your oldest lines of credit. While closed accounts often remain on your credit report for up to ten years and contribute to your credit history length for FICO scores, the average age calculation could still be affected over time, especially with VantageScore models. This reduction in average account age may result in a slight decrease in your credit score.

The credit mix, or variety of credit types on your report, can also be influenced. While its impact on your overall score is smaller (around 10% for FICO scores), closing a credit card, especially if it is your only revolving credit account, could slightly alter this mix. Lenders appreciate seeing a diverse and responsibly managed credit portfolio, so the absence of a revolving account might be viewed less favorably, although this impact is generally minor.

Account Closure Due to Inactivity

Credit card issuers may close an account due to inactivity for several business reasons. Issuers generate revenue primarily through interchange fees on transactions and interest charged on outstanding balances. An inactive account does not contribute to these revenue streams, making it unprofitable. Issuers also manage their overall credit exposure; they may close inactive accounts to reallocate available credit to customers who actively use their cards, or to reduce risk, especially during economic downturns.

The timeframe before an issuer closes an account for inactivity varies widely, ranging from six months to two or three years, depending on the issuer and the specific card product. Some issuers might send a notification or attempt to encourage usage before closing the account. However, they are generally not legally required to provide advance notice for account closures due to inactivity. The Credit CARD Act of 2009 mandates a 45-day notice for significant changes to account terms, but courts have determined that account cancellation due to inactivity does not fall under this requirement.

While an issuer-initiated closure for inactivity is not a direct fee penalty, it can have financial implications for the cardholder, primarily through its effects on the credit score as previously detailed. If an account is closed, any accumulated rewards or benefits associated with that card may also be forfeited. To prevent an account from being closed for inactivity, making small, occasional purchases and paying them off promptly can keep the account active.