What Happens to a Credit Card If You Never Use It?
Understand the often-overlooked consequences of holding an unused credit card and learn how to navigate them.
A credit card serves as a revolving line of credit, enabling individuals to borrow funds up to a predetermined limit for purchases, with the expectation of repayment, often with interest. Many people acquire credit cards for various reasons, such as earning rewards or building credit, but then find themselves not using certain cards frequently, or at all. While an unused credit card might seem harmless, its presence and inactivity can carry several implications for a cardholder’s financial profile. Understanding these outcomes is important for managing credit effectively.
Impact on Your Credit Score
An unused credit card can influence a person’s credit score, primarily through its effect on the credit utilization ratio. This ratio compares the total amount of credit used to the total available credit across all accounts. Keeping an unused card open, especially one with a high credit limit, can increase total available credit, which in turn can lower your credit utilization ratio if balances on other cards remain the same. A lower utilization ratio, typically below 30%, is viewed favorably by credit scoring models.
The length of credit history also plays a role in credit scoring, with older accounts generally contributing positively. An older, unused credit card can extend the average age of all credit accounts, a factor in credit score calculations. This demonstrates a longer history of credit management, which lenders prefer. An unused credit card does not directly harm a credit score as long as it remains open and in good standing.
Actions by the Card Issuer
Credit card issuers may take action if an account remains inactive for an extended period. A common action is account closure due to inactivity, which can occur after several months to a few years without use. Issuers may close accounts because inactive cards do not generate revenue from transaction fees or interest, and they represent a contingent liability on the issuer’s balance sheet. Annual fees may still apply regardless of usage.
If an issuer closes an account, they are not always required to provide advance notice to the cardholder. An issuer-initiated closure reduces total available credit, which can negatively impact your credit utilization ratio and credit score. This can occur even if no new debt has been incurred.
Managing Unused Cards
Effectively managing unused credit cards involves proactive steps to mitigate potential negative impacts and maintain a healthy financial standing. Regular monitoring of statements and credit reports for all open accounts is important to detect unauthorized activity or fraudulent charges. Many companies offer online access to statements and alerts for suspicious activity.
To prevent an issuer from closing an account due to inactivity, making small, infrequent purchases on the card and promptly paying them off can keep the account active. This demonstrates ongoing usage and helps maintain the account’s open status. Deciding to close an unused card should be done with careful consideration, especially if it carries a high annual fee or presents a temptation for overspending. Closing an old account, especially one with a high credit limit, can reduce your available credit and shorten the average age of your accounts, potentially impacting your credit score.