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

Many individuals acquire credit cards but later stop using them. Understanding the implications of credit card inactivity is important for maintaining a healthy financial standing and managing one’s credit profile. This article explores the consequences and considerations of having an unused credit card.

How Inactivity Affects Your Credit Profile

Credit scoring models assess factors like payment history, credit utilization, length of credit history, and credit mix to determine creditworthiness. An unused credit card, if kept open, can positively influence the length of credit history by contributing to the average age of all accounts. A longer credit history often signals financial stability.

The available credit limit on an unused card also plays a role in credit utilization, which measures the amount of credit being used against the total available credit. Even with a zero balance, an open, unused card increases the total available credit, thereby helping to keep the utilization ratio low. Maintaining a credit utilization ratio below 30% is generally advised for optimal credit health.

Conversely, closing an old, unused credit card can negatively impact the average age of accounts, especially if it is one of the oldest credit lines. The age of accounts contributes approximately 15% to a FICO score, and closing a long-standing account can effectively shorten this history over time once it falls off the credit report. Furthermore, closing a card reduces the total available credit, which can inadvertently increase one’s credit utilization ratio on remaining cards, potentially lowering the credit score even if spending habits have not changed. A decrease in the diversity of credit types, if the closed card was a unique type of credit, could also affect the credit mix component of a credit score.

Understanding Account Status and Potential Charges

When a credit card remains unused for an extended period, the account can become dormant from the issuer’s perspective. Credit card companies generally prefer accounts to be active because they generate revenue through transaction fees and interest. Issuers may close accounts due to inactivity, and this can happen after varying periods, often ranging from six months to two years, depending on the specific card issuer’s policy. Some issuers might provide notice before closing an account, though they are not legally obligated to do so for inactivity-related closures.

Credit card inactivity fees are no longer permitted. However, this does not exempt cardholders from annual fees, which can still be charged whether the card is used or not. If a card carries an annual fee, this charge will typically appear on the statement and must be paid to keep the account in good standing.

Cardholders should regularly review their cardholder agreements to understand specific terms regarding inactivity and potential fees, such as annual fees. An inactive card also presents a risk of overlooked fraudulent charges or missed recurring payments if the account is not monitored regularly. Losing benefits like accumulated rewards points can also occur if an account is closed due to inactivity, as these often expire upon account termination.

Deciding What to Do with an Unused Card

Deciding what to do with an unused credit card involves weighing its financial impact. Keeping an unused credit card open can be beneficial for maintaining a long credit history and preserving a high amount of available credit, which helps keep the credit utilization ratio low. An open, unused card also serves as a potential emergency fund.

Conversely, there are valid reasons to consider closing an unused credit card. Simplifying finances by reducing the number of accounts to manage can be appealing for some individuals. If the card carries an annual fee and its benefits are not being utilized, closing it can eliminate an unnecessary expense. Furthermore, for individuals prone to overspending, closing an account can remove the temptation of easily accessible credit.

If the goal is to keep the account open without actively using it for major purchases, consider making a small, recurring purchase on the card, such as a streaming service subscription or a utility bill. Setting up autopay for this small charge and ensuring it is paid in full each month can keep the account active and demonstrate responsible credit management. This strategy prevents the issuer from closing the account due to inactivity while still benefiting the credit profile.