What Happens If I Stop Using My Credit Card?

Many people have credit cards they no longer actively use. Stopping use of a credit card often raises questions about its effects on one’s financial standing. Understanding these implications is important for managing personal finances. This article explores the outcomes when a credit card account becomes inactive.

Your Credit Score

Ceasing to use a credit card can influence your credit score, a numerical representation of your creditworthiness.

One significant aspect is your credit utilization ratio, which measures the amount of credit you are using compared to your total available credit across all accounts. If an unused credit card, especially one with a high credit limit, is closed, your overall available credit decreases, potentially increasing your utilization ratio. Credit scoring models heavily weigh this ratio, with a higher percentage generally indicating greater risk and potentially leading to a lower score.

The length of your credit history also plays a role in your credit score. Credit scoring models consider the average age of all your credit accounts. Closing an older, unused credit card can shorten this average, particularly if it was one of your oldest accounts. A longer credit history typically contributes positively to your score, demonstrating a sustained period of responsible credit management.

Your credit mix, which refers to the different types of credit accounts you manage, is another factor considered by credit scoring models. An inactive but open credit card can still contribute to a diverse credit portfolio. While this factor has a smaller impact compared to payment history or amounts owed, maintaining a variety of credit types can be beneficial.

Simply not using a credit card does not inherently harm your credit score as long as the account remains open and in good standing. The negative impact on your credit score often arises if the credit card issuer decides to close the inactive account. If the account remains open, it continues to contribute positively to your available credit and the length of your credit history.

The Card Account Itself

When a credit card becomes inactive, the card account is subject to various changes and potential consequences initiated by the issuer. Credit card issuers monitor account activity and may close accounts that have not been used for an extended period. This inactivity period can vary significantly among issuers, ranging from as short as six months to as long as several years, though many close accounts after one to three years of no activity.

Issuers may close inactive accounts for various reasons, including risk management and reducing operational costs associated with maintaining unused lines of credit. You might not receive a direct notification before your account is closed.

An issuer-initiated account closure can lead to the forfeiture of accumulated rewards points, cash back, or travel miles. Many rewards programs specify that points will be lost if the associated account is closed. Additionally, any card-specific benefits, such as extended warranty protection or travel insurance, will cease upon account closure.

Even if an account remains open despite inactivity, annual fees may still apply. If your card carries an annual fee, you will continue to be billed for it as long as the account is active. Furthermore, issuers might reduce the credit limit on an inactive card as a risk management measure, even without fully closing the account. This reduction can occur without prior notice and can impact your credit utilization ratio.

What to Consider Before Inactivity

Before allowing a credit card to become inactive, take several steps to mitigate potential negative impacts.

Pay Off Balances

Ensure any outstanding balance on the card is fully paid off. This prevents interest charges from accruing on an unused card and avoids late payment fees. Paying the balance in full is always a sound financial practice.

Redeem Rewards

Redeem any accumulated rewards points or miles before the card potentially becomes inactive or is closed by the issuer. Rewards programs often have terms and conditions that lead to forfeiture of rewards upon account closure or prolonged inactivity. Proactively cashing out or using your rewards ensures you benefit from them.

Review Annual Fees

Review the card’s terms and conditions for any applicable annual fees. If the card carries an annual fee and you do not intend to use it, closing the account yourself might be a better option than continuing to pay for an unused service. This can prevent unnecessary expenses from accumulating over time.

Understand Issuer Policy

Familiarize yourself with your credit card issuer’s specific policy regarding account inactivity and potential closure timelines. This information is typically available in your cardholder agreement or by contacting customer service.

Maintain Activity

To prevent account closure while minimizing usage, consider making a small, infrequent transaction on the card. This could be a small recurring bill, a streaming service subscription, or a minor purchase every few months. Setting up an automatic payment for a small amount can help keep the account active.

Keeping an old card open can benefit your credit score by preserving the length of your credit history and contributing to your overall available credit. However, closing an account can reduce temptation to spend and eliminate annual fees.