Will a Credit Card Close If You Don’t Use It?
Understand why credit cards close from inactivity, their impact on your credit, and effective ways to maintain active accounts.
Credit card accounts can be closed due to inactivity. Understanding the reasons for closure and their potential effects can help cardholders manage their accounts effectively.
Reasons for Inactivity Closure
Credit card issuers operate as businesses and have various reasons for closing accounts that show no activity. One primary factor is risk management, as an unused account is a potential liability, even if it has a zero balance. An inactive account could be more susceptible to fraud if not regularly monitored by the cardholder, leading to potential losses for the issuer.
Additionally, maintaining inactive accounts incurs operational costs for banks, including administrative overhead, statement generation, and regulatory compliance. These costs generate no revenue if the card is not used for purchases, which typically generate interchange fees from merchants. Issuers also have a finite amount of credit to extend, preferring to allocate it to active users. Policies on how long an account can remain inactive before closure vary by issuer, but dormancy periods can range from six months to two or three years.
How Account Closure Affects You
Closing an inactive credit card account can have several implications, particularly for the cardholder’s credit score. A significant impact relates to the credit utilization ratio (the amount of credit used compared to total available credit). When an account closes, the total available credit decreases, which can cause the utilization ratio to increase, potentially lowering credit scores. For example, closing a card with a $10,000 limit reduces overall available credit, making existing balances appear as a higher percentage of the remaining total credit.
Another factor affected is the length of credit history. If the closed account was one of the cardholder’s oldest, its removal from the active file can reduce the average age of all credit accounts, which is a component of credit scoring models. While a closed account remains on credit reports for up to ten years, its inactive status can still affect the perceived stability of one’s credit history. Closing an unused credit card can also mean losing convenience or access to emergency funds.
Keeping Your Account Active
To prevent closure due to inactivity, cardholders can take proactive steps to demonstrate usage. Making small, infrequent purchases is an effective strategy, such as a single online subscription payment or a minor transaction like buying coffee. The key is to make a purchase and pay it off promptly to avoid interest charges and maintain a zero balance.
Setting up calendar reminders to use each card periodically, perhaps quarterly, ensures consistent activity across all accounts. Alternatively, linking the card to a small, recurring bill that is automatically paid each month can also keep the account active. If concerns arise, contacting the card issuer directly provides clarity on their specific inactivity policies and actions required to keep the account open.