What Happens If I Don’t Use My Credit Card?

Not using a credit card means maintaining a zero balance and having no activity for an extended period. While this might seem advantageous, it can impact your finances and credit.

Credit Score Implications

An unused credit card can significantly influence your credit score. One factor is the credit utilization ratio, which compares the amount of credit used to the total available credit. An open, unused credit card with a high credit limit can lower this ratio by increasing the total available credit, which is viewed favorably by credit scoring models. Conversely, closing such an account would reduce total available credit, potentially increasing the utilization ratio on other active cards if balances are carried.

The length of credit history is another element, reflecting how long accounts have been open and actively managed. Older, unused credit cards contribute positively to the average age of all credit accounts. Closing a long-standing, inactive credit card can shorten the average age of a credit history, which might negatively affect a credit score, particularly for individuals with a relatively short overall credit history.

Credit scoring models also consider the number of accounts and the mix of credit types. An unused card contributes to the number of accounts and credit mix. While it doesn’t generate new payment history, it also doesn’t negatively impact it if prior payments were on time.

Credit scoring systems assess these elements to determine creditworthiness. They favor lower credit utilization, longer credit histories, and a diverse mix of credit accounts. An unused card can maintain a beneficial position by preserving a high credit limit and contributing to a long average account age.

Card Issuer Policies and Inactivity

Credit card issuers have specific policies regarding accounts that remain inactive for prolonged periods. Banks may choose to close an inactive account to mitigate their own risk and manage their portfolio more efficiently. This often occurs after a period of no activity, ranging from six months to two years, though the exact timeframe varies by issuer and card type. Account closures initiated by the issuer are usually preceded by a notification to the cardholder.

Historically, some credit cards imposed inactivity fees. The Credit Card Accountability Responsibility and Disclosure Act of 2009 (CARD Act) largely restricted these fees. Annual fees, however, are charged regardless of card usage.

Another action an issuer might take is reducing the credit limit on an inactive card. This is a common practice for banks to reduce their exposure to potential losses on accounts that show no recent activity. A reduction in the credit limit can affect your credit utilization ratio by decreasing total available credit. This can indirectly impact your credit score, as a higher utilization ratio is often seen as a greater credit risk.

Deciding to Keep or Close the Card

Deciding whether to keep or close an unused credit card involves weighing its potential impact on credit health and personal financial management. Keeping an inactive card can be advantageous, especially if it is an older account with a high credit limit. It contributes positively to your credit history and helps maintain a low credit utilization ratio. It can also serve as an emergency fund.

Conversely, there are situations where closing an unused card might be reasonable. If the card carries an annual fee, closing it eliminates a recurring expense. For some individuals, having too many open credit lines, even if unused, can present a temptation to overspend or complicate financial oversight. Simplifying finances by reducing the number of open accounts can contribute to better management, especially if the card offers no unique benefits.

Instead of closing an account, there are alternatives to consider for keeping a card active without significant expenditure. Making a small, occasional purchase, such as a subscription or a minor online transaction, can prevent the account from being flagged as inactive. Another strategy involves setting up a small recurring payment, like a utility bill, to be paid automatically through the card and then immediately paying off that balance. These actions ensure ongoing activity, helping to preserve the account’s positive contributions to credit history and available credit.