What Happens When You Don’t Use a Credit Card?

Many individuals have credit cards they rarely use. These cards might have been opened for an introductory offer, emergencies, or accumulated over time. While leaving a credit card dormant might seem harmless, inactivity can lead to various implications for your financial standing. Understanding these potential outcomes is important for maintaining sound financial health.

Impact on Your Credit Score

Not using a credit card can still influence your credit score. Your credit utilization ratio, which measures the amount of credit used compared to your total available credit, is a significant factor. A lower ratio is generally favorable to lenders. An unused credit card with a high credit limit contributes to your total available credit, helping keep your utilization ratio low, even if you carry balances on other cards.

The length of your credit history also impacts your credit score. Older accounts, even if inactive, contribute to the average age of all your credit accounts. This longer history demonstrates a consistent ability to manage credit over time.

Maintaining a variety of credit types, known as your credit mix, can also be beneficial. An open, unused credit card contributes to this mix, showing lenders you can responsibly handle revolving credit. Its presence on your credit report can positively contribute to your credit profile.

Account Closure by the Issuer

Credit card issuers may close inactive accounts after a period of non-use. This period can range from a few months to several years. Issuers often close these accounts because they do not generate revenue from idle cards and prefer to allocate credit lines to active users.

Issuers are generally not required to notify cardholders before closing an account due to inactivity. The Credit Card Act of 2009 requires notice for significant changes to account terms, but account closures due to inactivity do not always fall under this requirement. Therefore, a cardholder might only discover the closure when attempting to use the card or reviewing their credit report.

The closure of an inactive account can have direct consequences on your credit standing. It reduces your total available credit, which can immediately increase your credit utilization ratio if you have balances on other cards. This can lead to a decrease in your credit score. Additionally, if the closed card was an older account, its removal can shorten the average age of your accounts, further impacting your credit score.

Potential Fees and Charges

While certain fees are associated with credit cards, inactivity fees are largely a thing of the past. Credit card inactivity fees, also known as dormancy fees, were banned in 2010. This means that credit card companies cannot charge you solely for not using your card.

However, annual fees still apply even if a card remains unused. These fees are typically charged on the anniversary of the account opening and must be paid as long as the account remains open. If a card carries an annual fee, you will continue to be billed for it regardless of activity. Other fees, such as foreign transaction fees, only apply if the card is used for transactions in a foreign currency.

Managing Unused Credit Cards

For individuals who wish to keep unused credit cards, making occasional small purchases is a practical strategy. Using the card for a minor expense, such as a streaming service or a small online purchase, and then immediately paying off the balance, signals activity to the issuer. This intermittent use helps prevent the account from being flagged as dormant and potentially closed. Setting up a small recurring bill to be paid with the card and automatically paid off each month is another effective method.

Contacting the credit card issuer directly can provide clarity on their specific inactivity policies. You can inquire about how long an account can remain inactive and discuss options if you no longer desire the card. Some issuers may offer the option to downgrade a card to a version with no annual fee, preserving your credit history while eliminating recurring costs.

Carefully consider whether to downgrade or close an unused card. Downgrading allows you to maintain the account’s age and credit history, which benefits your credit score. Closing an account, especially an older one, can negatively impact your credit utilization ratio and the average age of your accounts. If a card has a significant annual fee and provides no value, closing it might be sensible, but weigh the potential credit score impact against the cost. Regularly reviewing statements for all credit accounts, even inactive ones, is also important to identify any unexpected fees or fraudulent activity.