What Happens If I Don’t Use My Credit Card?

The simple answer is: nothing catastrophic. Your credit card won’t magically disappear, and the credit card company isn’t going to send out debt collectors just because you haven’t swiped it lately. However, prolonged inactivity can have some surprising, and potentially negative, consequences that are worth understanding. Let’s delve into the nuances of what happens when your credit card gathers dust in your wallet or sits dormant in your online account.

The Immediate Effects of Inactivity

The most immediate effect of not using your credit card is that it simply sits there. Your available credit remains untouched, and you won’t be accumulating any debt or rewards. You’ll continue to receive statements (possibly electronic only, depending on your preferences), and you may still be subject to annual fees if your card has them, regardless of usage.

The Lurking Dangers of a Dormant Account

While seemingly harmless, inactivity can lead to a few potential issues that you should be aware of.

Account Closure

This is perhaps the most significant risk. Credit card companies reserve the right to close accounts due to inactivity. This is typically outlined in your cardholder agreement. The length of inactivity that triggers closure varies depending on the issuer, but it’s generally in the range of 12 to 24 months.

Why do they do this? Inactive accounts represent a liability for the issuer. They have to maintain the account infrastructure, even if it’s not generating revenue. Closing inactive accounts streamlines their operations and reduces costs.

Impact on Your Credit Score

While simply having a credit card, even unused, is generally positive for your credit score, the impact of inactivity leading to account closure can be more complex.

• Loss of Available Credit: A significant factor in your credit score is your credit utilization ratio, which is the amount of credit you’re using compared to your total available credit. Closing a credit card reduces your overall available credit, potentially increasing your credit utilization ratio on your remaining cards. A higher utilization ratio can negatively impact your credit score.
• Age of Credit History: The length of your credit history is another factor in your credit score. If the closed card was one of your oldest accounts, it could shorten your average credit age, which could negatively impact your score, although the effect is often minimal since closed accounts remain on your credit report for up to 10 years.

Loss of Rewards and Benefits

If your card offers rewards programs like cashback, points, or miles, you obviously won’t be earning any of those benefits if you’re not using the card. Additionally, some cards come with perks like travel insurance, purchase protection, or extended warranties. These benefits are only available when you use the card for eligible purchases. Letting the card sit idle means you’re missing out on these potential advantages.

Potential for Fraud

While less common, a dormant account can be an easier target for fraud. You might not be checking your statements as regularly, making it harder to detect unauthorized activity quickly. It’s crucial to continue monitoring your credit card statements, even for inactive cards.

Card Cancellation Fees

Though uncommon, some credit card companies may impose fees for cancelling a card, especially if it’s a new card or if cancelling it significantly reduces your overall credit limit. It’s essential to check your cardholder agreement for any such fees.

Strategies for Maintaining an Active Account Without Overspending

The key is to keep your card active without falling into the trap of unnecessary spending and debt. Here are a few simple strategies:

• Set Up Recurring Payments: Link a small, recurring bill, like a streaming service subscription or a monthly phone bill, to your credit card and set up automatic payments. This ensures regular activity without requiring conscious effort.
• Make Small, Occasional Purchases: Use the card for small, everyday purchases that you would normally make anyway, like groceries or gas. Immediately pay off the balance to avoid accumulating interest.
• Monitor Your Statements: Regularly check your online statements, even if you’re not actively using the card, to detect any fraudulent activity.

Frequently Asked Questions (FAQs)

Here are 12 common questions related to credit card inactivity:

1. Will my credit score go down if I don’t use my credit card?

Not directly. The act of not using a credit card doesn’t inherently lower your score. However, if the card issuer closes the account due to inactivity, it could indirectly affect your credit score by reducing your available credit and/or shortening your credit history.

2. How long can a credit card remain unused before it’s closed?

Typically, credit card issuers will close an account after 12 to 24 months of inactivity. Check your cardholder agreement for specific details.

3. Is it better to cancel an unused credit card or keep it open?

It depends. If the card has an annual fee that you’re paying without using the card, cancelling it might be the better option. However, if the card is one of your oldest accounts and has no annual fee, keeping it open (and using it occasionally) could benefit your credit score.

4. Can I reactivate a closed credit card?

Sometimes. It depends on the card issuer and the reason for closure. You can contact the issuer to inquire about reactivation, but there’s no guarantee they’ll reinstate the account.

5. Will a closed credit card still show up on my credit report?

Yes. Closed accounts remain on your credit report for up to 10 years from the date they were closed.

6. Does it matter which credit card I use to keep my accounts active?

Not really. As long as you’re making regular, small purchases and paying them off promptly, any credit card will do the trick.

7. Can I use my credit card just once a year to keep it active?

While a single transaction per year might be enough, it’s risky. The card issuer’s definition of “active” could be more frequent than that. It’s safer to use the card at least a few times per year.

8. What if I have multiple unused credit cards?

The same principles apply to each card. Assess the fees, benefits, and impact on your credit score for each card individually. Consider closing the ones that offer no value and actively using the ones that do.

9. How can I find out if a credit card is about to be closed due to inactivity?

You should receive a notification from the credit card issuer before they close the account. However, it’s always a good idea to proactively monitor your accounts and contact the issuer if you have any concerns.

10. Is it better to spread my spending across multiple credit cards or concentrate it on one?

It depends on your goals. Spreading spending across multiple cards can help you earn more rewards if each card offers different benefits. However, concentrating your spending on one card can make it easier to track your expenses and earn larger rewards with that specific card.

11. Does using a credit card for balance transfers count as activity?

Yes, a balance transfer counts as activity on the credit card you’re using for the transfer.

12. What if I have a secured credit card that I don’t use?

The same principles apply to secured credit cards as unsecured cards. While secured cards are often used to build or rebuild credit, inactivity can still lead to account closure. Maintaining activity, even with small purchases, is essential.

The Bottom Line

While there’s no immediate danger in letting your credit card gather dust, prolonged inactivity can lead to account closure and potentially affect your credit score. By understanding the risks and implementing simple strategies to maintain activity, you can reap the benefits of having a credit card without falling into the trap of overspending. Remember to always monitor your accounts, read your cardholder agreements, and contact your card issuer if you have any questions or concerns.