What happens if you don’t use your credit card
Your account may be closed
Cardholders with unused credit cards usually don’t pay attention to the card’s statements or notices. This is usually fine when there is no balance to pay off, but after a long period of inactivity, the issuer may close the credit card account. The exact length of time varies from issuer to issuer. Contact your card issuer to find out when they will deactivate your account if your account is not being used.
Card issuers are not required to give notice of impending deactivation. They may give cardholders the opportunity to maintain an account before a strict deadline, but this is not required. Using the card to make a single purchase should be enough to keep the account active.
For some people, it makes little sense to close the account. However, for those with low overall credit limits, closing an account may have a negative impact on credit scores.
It’s a good idea to make sure you maintain the earliest possible credit limit, since the length of your credit history accounts for 15% of your credit score. Closed accounts do not immediately affect your credit age because closed accounts remain on your credit report for a period of time, but these accounts do not continue to age and will eventually disappear from your credit report.
Your credit score may drop
There are several ways a cardholder’s credit score may drop due to an unused card, especially if it is closed.
A cardholder’s maximum credit limit is the combined credit limit of all revolving credit accounts. The balance held on all accounts is added up and compared to the maximum credit total for the same group of accounts, called the credit utilization ratio. When a credit card account is closed, the cardholder’s maximum credit limit is reduced by the credit limit of the closed account, which can increase credit utilization – by 30% of your credit score.
For example, if a cardholder has two credit cards, each with a $1,000 credit limit, their 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 is cut in half to $1,000. The cardholder’s credit utilization then spikes to 50% ($500/$1,000) – well above the recommended maximum of 30%. The amount owed (i.e., credit utilization ratio) is the second most important factor in determining credit scores, after payment history.
Should I close a credit card that I never use?
It may not be a problem to close an unused card if
It is not your earliest bank card account.
Your overall credit utilization rate does not exceed 30%.
There is no clear incentive to keep the card (e.g., rewards, cash back, low interest rates).
Incentives are the first thing to review. Consider why the card has never been used and if there is a good reason to keep it open. Is there cash back potential that can be utilized? Are there any unused travel credits? If the answer is no, and there is no significant risk to your credit score, you can safely close it.
Credit cards should be purchased strategically. Try switching to a new card that offers better usage incentives, such as a substantial welcome bonus or introductory 0% APR. other benefits of using a credit card for everyday purchases include better fraud protection and security, no fees for international purchases, car rentals or travel insurance.
The bottom line
If you don’t use a specific credit card, your credit score won’t be affected as long as that card remains active. However, an inactive credit card account can have an adverse effect if the bank decides to close your card. Most importantly, if a credit card account is closed, your credit utilization rate may go up, and it may go up significantly.
You should also be careful to keep your oldest accounts open to positively impact the length of your 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 by the end of the billing cycle. By doing this, your credit utilization rate stays low, your highest credit stays high, and the credit bureaus can see responsible credit activity.
