Credit cards are useful financial resources that enable people to make quick transactions. They are also able to improve credit scores and provide people with rewards for their purchases. It’s no wonder why over 196 million people have credit cards as reported by TransUnion in Q4 of 2021.
However, some credit cards sit idle. People may take a break from credit cards to avoid debt or make drastic changes to their spending habits. If you take a few months off, nothing will likely happen, but a few things can happen if you stop using it for years.
What happens if you’re not using your credit card
If you have a dormant credit card that you haven’t used in over a year, a few things might happen.
Your account could be closed
Credit card issuers do not have set times at which they must close your account. Most issuers will wait for at least a year of inactivity before they consider closing your account. If your credit card is closed, you will have to apply for another credit card.
Your credit score may drop
Credit history affects 15% of your credit score. When old accounts are closed, that closure will end up reducing your credit history and hurting your credit score in the process. A lower credit score can make it more difficult to qualify for loans and obtain desirable interest rates.
You’ll risk overlooking fraudulent activity
Inactive credit cards can still remain active. For instance, thieves may obtain your credit card information and use it to buy goods or afford services. An active credit cardholder can quickly catch fraudulent activity and report it to the issuer, but an inactive cardholder might not pay any attention to possible credit card activity.
You have to report fraudulent credit card activity within 60 days in order to get your money back. If you don’t check your credit card for several months, you won’t be able to retrieve the money someone else has spent with your card.
Unpaid balances will still accrue interest
Interest accrual never takes a break unless you repay the debt. Credit card balances will continue increasing, and continuously missing the minimum payment will hurt your credit score. You will also have a higher debt-to-income ratio, which will hurt your loan application. If you want to use your credit card less frequently, just make sure you pay your credit card debt first. Taking a hiatus or waiting for your account to be closed will not let you escape any debt that you owe. Don’t let the interest accumulate.
You’ll still need to pay your annual fee
Some credit card companies charge annual fees that you must pay in order to use their cards. You’ll still have to pay a fee if you do not use the card. Choosing to stop using your credit card so that you can avoid this fee won’t do you any good.
Will I be charged if I don’t use my credit card?
Credit card companies used to charge inactivity fees, but the Federal Reserve banned this practice in 2010. Even though you can no longer receive inactivity fees, you will still receive regular charges, primarily the annual fee and any interest that you accrue. If you have zero credit card debt and no annual fees, you probably will not be charged for an unused credit card.
If I don’t use my credit card does it hurt my credit?
Not using your credit card can hurt your score in two ways. Ignoring credit card debt and letting it accumulate will hurt your payment history and your credit utilization ratio. These credit scoring categories combined make up 65% of your credit score. Making sure you do not have a credit card balance before you deactivate your card will save you from this scenario.
Credit cardholders whose cards have been inactive for over one year can request to have their accounts closed. While that sounds beneficial, a closed credit card will actually hurt your credit history since the older account is no longer contributing positively to your credit score. This category only makes up 15% of your score.
By not using a credit card, you will limit your options when it comes to building your payment history. In this case, credit card inactivity will not hurt you, but you will miss out on the opportunity to increase your score with a credit card.
Should I close a credit card I don’t use?
Closing a credit card can simplify your finances and give thieves one less entry point into your finances. You will also get rid of the annual fee, though you will still have to pay your remaining debt. Closing a credit card will hurt your score since you are reducing your credit history.
Closing your credit card also eliminates a funding source. If you close all of your credit cards, you will have to apply for a new credit card and trigger a hard inquiry, an event that can drop your score by a few points.
How to keep your credit cards active
Keeping your credit card active isn’t hard. You don’t have to hit spending targets or fall deep into the world of credit card debt. In fact, some people use their credit cards just to pay a single monthly subscription.
Using your credit card to make monthly payments on the subscription will ensure it is always active. Paying the debt on time will build your credit score and help you detect fraudulent activity. Making fewer monthly transactions on your credit card makes it easier to pick out suspicious transactions.
Use your credit card at your own pace
A credit card can improve your credit, but it can also lead to considerable debt. As long as you make multiple transactions every year, your account will stay open and your card will contribute to your credit score. If you decide to use your card more often, make sure you only take on as much debt as you can afford to pay back.
How long can you go without using a credit card?
You can avoid using your credit card for a year before the issuer will consider closing your account.
Is it bad to have a credit card you never use?
It’s not bad to avoid using your credit card as long as you have not accrued any debt. Making sporadic financial transactions throughout the year will keep your account open.
What happens if I get a credit card and never use it?
If you never use your credit card, simply having a card will still improve your credit history. That said, those improvements go away if the card is closed after more than one year of inactivity.