What Happens If I Don’t Use My Credit Card?
Discover the often-overlooked effects of not using your credit cards, from financial implications to your credit profile. Learn how to manage them effectively.
Holding unused credit cards can lead to various outcomes. Understanding the implications of a dormant credit card is important for financial health.
Impact on Credit Health
An unused credit card can influence an individual’s credit score and overall credit profile. Credit utilization, which measures the amount of credit used against total available credit, is a primary factor. A low credit utilization ratio is beneficial for credit scores. An unused card with a high credit limit contributes to a larger total available credit, which can help keep the utilization ratio low if other cards carry balances. If that card is closed, the total available credit decreases, potentially causing the utilization ratio to rise and negatively impacting the credit score.
The average age of accounts also plays a role in credit scoring models. An older, unused credit card contributes to a longer average age of accounts, which is seen favorably by lenders. If this long-standing account is closed, it might eventually be removed from credit reports, potentially shortening the average age of accounts and affecting the credit score.
Inactive Account Closure
Credit card issuers may close an account due to inactivity, a common practice driven by risk management and the cost of maintaining dormant accounts. Issuers earn revenue through interchange fees when a card is used. If a card remains unused, it generates no income, providing little incentive for the issuer to keep it open.
The period a card needs to be inactive before closure varies among issuers, often between one and three years. Issuers are not required to provide advance notice before closing an account due to inactivity.
When an account is closed due to inactivity, it is marked as “closed by issuer” on the consumer’s credit report. This closure reduces overall available credit, which can impact the credit utilization ratio. The account’s payment history remains on the credit report for up to 10 years, contributing positively if well-maintained.
Potential Costs and Missed Opportunities
Not using a credit card can lead to financial costs and missed benefits. Some credit cards carry annual fees charged regardless of use. These fees must still be paid, representing an expense for an unutilized service.
Many credit cards offer rewards like cash back, points, or travel miles. Failing to use a rewards card means foregoing these benefits, which can accumulate value. Cards also include benefits like extended warranties or purchase protection, tied to purchases made with the card. When a card is dormant, these protections are forfeited.
Managing Unused Cards
To prevent an unused credit card from negatively impacting your financial profile, make small, occasional purchases. This can keep the account active and deter issuers from closing it. Pay these small balances immediately to avoid interest charges.
Regularly monitor statements for all credit cards to identify unauthorized activity or unexpected fees. Keep contact information current with the card issuer to receive important notices. Securely store physical credit cards to prevent theft or accidental use.
If a card has an annual fee and no longer provides benefits, or if managing too many cards becomes burdensome, consider closing the account. Before closing, understand the potential impact on credit utilization and average age of accounts, especially for an older account.