What Happens If You Stop Using a Credit Card?

Pausing or completely ceasing credit card usage can lead to various outcomes. What happens depends on individual financial circumstances and how any inactivity is managed. Understanding these potential implications is important for personal financial health.

Impact on Your Credit Profile

Stopping credit card use can affect an individual’s credit score through several mechanisms, primarily related to how credit bureaus assess financial behavior. A credit score is influenced by factors such as payment history, the amounts owed, the length of credit history, new credit, and the mix of credit types. Inactivity or the closure of an account can alter these underlying components.

The “amounts owed” category, particularly credit utilization, is significantly impacted if an inactive credit card is closed. Credit utilization refers to the percentage of your total available credit that you are currently using. For instance, if you have a $1,000 balance on a card with a $10,000 limit, your utilization is 10%. If that card is closed, and you only have another card with a $5,000 limit, the same $1,000 balance would result in 20% utilization on your remaining credit. Generally, keeping utilization below 30% across all accounts is considered favorable for credit scores.

The length of your credit history also plays a role in your credit score, considering the average age of all credit accounts. Closing an old, inactive account can reduce this average age, potentially lowering your score, especially if it was one of your oldest accounts. While closed accounts generally remain on your credit report for seven to ten years, they cease to contribute to the active average age of your accounts.

Credit mix, which evaluates the diversity of your credit accounts (e.g., revolving credit like credit cards versus installment loans like mortgages), can be slightly affected if an inactive card is one of only a few credit types. However, this factor typically has a lesser impact on overall credit scores compared to payment history or credit utilization. The actual impact of stopping credit card use varies greatly depending on an individual’s overall credit profile, such as someone with many old, established accounts compared to someone with only one or two newer accounts.

Account Status and Issuer Actions

A credit card account does not automatically close immediately due to inactivity; it remains open but dormant. Credit card issuers may close an account after a period of inactivity, which commonly ranges from 6 to 24 months. This timeframe varies by issuer and card product.

Issuers notify cardholders before closing an inactive account. These notifications are sent via mail or email, 30 to 60 days in advance of the planned closure. This allows the cardholder an opportunity to take action, such as making a small purchase, to keep the account open.

Dormant or inactive accounts can present several potential issues for cardholders. A more common risk involves forgotten recurring charges or subscriptions linked to the unused card, such as streaming services or gym memberships. These charges can continue, potentially leading to late payments and interest accumulation if the cardholder is not monitoring the account.

An inactive card might also be less frequently monitored by the cardholder, increasing the risk of fraudulent activity going unnoticed for longer periods. To prevent an issuer from closing an account due to inactivity, a cardholder can easily keep it technically “active.” This can be achieved by making a small recurring charge, such as a monthly subscription for $5 to $10, or by occasionally making a minor purchase.

Considerations for Closing an Account

There are situations where a user might find it advisable to proactively close a credit card account. This decision could stem from a desire to avoid high annual fees, which can range from approximately $95 to over $500 for premium cards. Some individuals choose to close accounts to reduce the temptation of having too much available credit, while others may do so to simplify their financial management.

Before initiating the closure of a credit card account, several preparatory actions are imperative. It is important to pay off the outstanding balance; any remaining balance will continue to accrue interest and possibly fees. Identifying and transferring any automatic payments or subscriptions linked to the card is also necessary. Reviewing statements for the past 12 to 24 months can help ensure all recurring charges, such as utilities, streaming services, or online memberships, are identified and updated to a different payment method.

Redeeming any accrued rewards points or cash back before closing the account is another important step. Credit card issuers forfeit unredeemed rewards upon account closure, meaning points would be lost. Cardholders should utilize these benefits or transfer them if possible, according to the issuer’s terms.

The process for formally closing an account involves contacting the credit card issuer directly. This can be done via a phone call, which provides immediate confirmation, or through a secure message feature within the issuer’s online portal, providing a written record. It is advisable to request written confirmation of the account closure, verifying that the account has been closed and reported as such to credit bureaus. After receiving confirmation, physically destroying the card is recommended to prevent any potential misuse.