What Happens If I Have a Credit Card and Never Use It?
Discover the often-overlooked consequences of holding a credit card you rarely or never use.
Having a credit card with little to no activity is common. While it might seem harmless, understanding the implications of keeping such an account open can help individuals make informed financial decisions.
Credit Profile Implications
An unused credit card can positively influence an individual’s credit profile through its impact on the credit utilization ratio. This ratio, which compares the amount of credit used to the total available credit, is a significant factor in credit scoring models, often accounting for approximately 30% of a person’s score. Keeping an unused card with a substantial credit limit open helps maintain a higher overall available credit, which in turn can keep the utilization ratio low, even if other active cards carry balances. For instance, if a person has $10,000 in available credit across all cards and uses $1,000, their utilization is 10%. If an unused card with a $5,000 limit is closed, the available credit drops to $5,000, and the same $1,000 balance results in a 20% utilization, potentially lowering the credit score.
Another factor that benefits from an unused, older credit card is the length of credit history. Credit scoring models consider the age of the oldest account and the average age of all accounts, contributing to roughly 15% of a credit score. An old, unused card maintains this historical data, demonstrating a long-standing relationship with credit. Closing such an account could reduce the average age of accounts, particularly if it is one of the oldest credit lines.
The mix of credit, which involves having a variety of credit types such as installment loans and revolving credit like credit cards, also plays a part in credit scoring, typically accounting for about 10% of the score. An unused credit card contributes to this mix as an open revolving credit line. Maintaining diverse credit types shows lenders an individual’s ability to manage different forms of debt responsibly, and an open credit card provides this benefit.
Account Status and Costs
Credit card issuers may close accounts due to inactivity, a practice that allows them to manage risk and reduce the number of dormant accounts on their books. While there isn’t a universally mandated period, an account might be considered inactive after six months to a year without any transactions. This closure can affect a credit profile, primarily by reducing the total available credit and potentially increasing the credit utilization ratio on remaining active cards.
An issuer-initiated closure could also impact the length of credit history if the closed card was an older account. Although closed accounts generally remain on a credit report for up to 7 to 10 years, their positive influence on the average age of accounts diminishes over time as new accounts are opened and older ones drop off.
Some credit cards, particularly premium or rewards cards, may carry annual fees, even if they remain unused. These fees are typically charged regardless of card activity and can range from around $50 to several hundred dollars. Cardholders should review their card agreement for such charges. There are also rare instances of inactivity fees, though these are less common.
Security Concerns
Possessing an unused physical credit card carries the risk of it being lost or stolen. If the card falls into the wrong hands, it could be used for unauthorized transactions, particularly if it is not regularly monitored.
Beyond the physical card, the account number associated with an unused credit card remains vulnerable to data breaches. If the card issuer or any merchant where the card information was previously stored experiences a security compromise, the account details could be exposed. This risk exists regardless of whether the card is actively used. Regular monitoring of statements and credit reports for any unfamiliar activity is a prudent measure, even for dormant accounts.
Maintaining secure financial practices extends to all accounts, active or not. This includes promptly reporting lost or stolen cards, reviewing account statements for discrepancies, and being vigilant about unsolicited communications requesting personal financial information.