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Credit cards are useful for everyday spending, large one-time purchases, balance transfers to take advantage of a lower interest rate and more. If you have one or more credit cards you rarely or infrequently use, there likely won’t be a penalty fee or immediate ding to your credit score. However, a card issuer may choose to deactivate an inactive account eventually and in such a case, your credit score could take a hit.
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What Happens If You Don’t Use Your Credit Card
Your Account May Get Closed
Cardholders with unused credit cards often won’t pay attention to said card’s billing statements or notifications. This is usually fine when there’s no balance to pay off, but after a long period of inactivity a card issuer may close a credit card account. The exact length of time varies among issuers. Contact your card issuer to find out when they will deactivate your account if it isn’t being used.
Card issuers are not required to give notice of a looming deactivation. They may give cardholders the opportunity to maintain an account before a strict deadline, but it isn’t required. One purchase using the card should be enough to keep the account alive.
For some, a closed account won’t mean much. But for those who have low overall credit limits, a closed account could have a negative impact on credit scores.
It’s a good idea to make sure you maintain your oldest lines of credit as the length of your credit history makes up 15% of your credit score. A closed account won’t immediately impact the age of your credit because a closed account remains on your credit report for a period of time, but those accounts won’t continue to age and will eventually fall off your credit report.
Your Credit Score May Drop
There are a few ways a cardholder’s credit score could drop with an unused card, especially if it’s closed.
A cardholder’s maximum credit limit is the combined credit limit of all rotating credit accounts. Balances held on all accounts added up and compared to the summed maximum credit of the same group of accounts is known as a credit utilization ratio. When a credit card account is closed, the cardholder’s maximum credit limit gets reduced by the credit limit of the closed account, which could increase credit utilization rate—which makes up 30% of your credit score.
For example, if a cardholder has two credit cards each with a credit limit of $1,000, his or her maximum credit limit is $2,000. One card has a $500 balance, which adds up to a credit utilization rate of 25% ($500/$2,000). If the other card is deactivated, the maximum credit limit halves to $1,000. Then the cardholder’s credit utilization shoots up to 50% ($500/$1,000)—well above the recommended 30% maximum. Amounts owed (i.e. credit utilization) is the second-most important factor in determining credit scores, after payment history.
Should I Close a Credit Card I Never Use?
It may be okay to close an unused card if:
- It’s not your oldest card account.
- Your overall credit utilization rate won’t go over 30%.
- There’s no clear incentive to keep the card (e.g, rewards, cash back, low interest rate).
The incentive is the first thing to review. Consider why the card is never used and whether there’s enough reason to keep it open. Is there cash-back potential to be taken advantage of? Are there travel points still unused? If the answer is no and there’s no major risk to a credit score, you can safely shut it down.
Credit cards should be acquired strategically. Try switching to a new card offering a better incentive to use it like a sizable welcome bonus or an introductory 0% APR. Other benefits to using credit cards for everyday purchases include better fraud protection and security, no fees on international purchases, car rental or travel insurance and more.
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Bottom Line
If you don’t use a particular credit card, you won’t see an impact on your credit score as long as the card stays open. But the consequences to inactive credit card accounts could have an unwanted effect if the bank decides to close your card. Most importantly, your credit utilization rates could go up, perhaps significantly, if a card account is closed.
You should also be mindful to keep your oldest accounts open to have a positive impact on your length of history. The easiest way to keep a rarely used account active is to make at least one small purchase every few months and pay it off in full before the end of the billing cycle. This way your credit usage remains low, maximum credit stays high and credit bureaus can see responsible credit activity.
