Many people obtain credit cards but then hesitate to use them, whether due to fears of overspending or a preference for cash. However, leaving your credit card idle in your wallet can have unexpected consequences.
In this guide, we’re going over what happens if you don’t use your credit card regularly, including potential impacts on your credit score, account status, and financial flexibility.
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Here’s what happens if don’t use your credit card
If you have a dormant credit card that you haven’t used in over a year, a few things might happen.
1. 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.
2. Your credit limit might be decreased
If you’re not actively using a credit card, the credit card issuer might decide to reduce the credit limit on the specific card.
At first glance, it may not sound like that big of a deal, but a lower credit limit can affect your credit utilization ratio, which can ultimately impact your credit score. Here’s where it becomes crucial:
Increased credit utilization ratio: Let’s say, initially, you have a credit card with a $5,000 limit, and your balance is $500. Your credit utilization ratio is a healthy 10 percent (500 ÷ 5,000). However, if your issuer reduces your credit limit to $2,000 and your balance remains the same, your credit utilization ratio suddenly jumps to 25 percent (500 ÷ 2,000).
Impact on credit score: A higher credit utilization ratio can have a detrimental effect on your credit score. Lenders view a high utilization ratio as a sign of potential financial strain and risk. Consequently, your credit score might drop because of this change.
3. You could risk overlooking fraudulent activity
Even if you’re not using a specific credit card, it can still remain active. And you may still be vulnerable to thieves who could use your credit card information to make purchases.
An active credit cardholder is in a better position to quickly catch fraudulent activity and report it to the issuer, but if you’re not using the card, you may forget to look at the statement balance. In turn, it may be easier for unauthorized credit card activity to slip through the cracks.
Remember to report any fraudulent credit card activity to your bank or credit card issuer immediately. Make sure to at least have real-time credit card alerts set-up or regularly check your credit card statement balance.
4. Unpaid balances will still accrue interest
Interest accrual doesn’t take a break just because you stop making purchases on a credit card.
Credit card balances will continue increasing with time. If you want to use your credit card less frequently, just make sure you pay off all 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.
5. You’ll still need to pay your annual fee
If your credit card features annual fees, you’ll still have to pay them even if haven’t used the credit card to make purchase. Choosing to stop using your credit card so that you can avoid this fee won’t do you any good. Instead, you’ll likely need to close your credit card in order to avoid annual fees.
Recommended: How to Close a Credit Card
6. You could be missing out on rewards and benefits
If you have a credit card but don’t use it, you might miss out on some good stuff. Many credit cards give you rewards like cash back or free flights when you spend money with them. So, if your card is just sitting there, you won’t earn those rewards.
Also, some credit cards give you extra perks like extra warranty on things you buy or purchase protection. They even provide travel insurance sometimes. But if you’re not using your card, you probably won’t get these benefits.
If I don’t use my credit card will I be charged?
Credit card companies used to charge inactivity fees, but the Federal Reserve banned this practice in 2010. Even though you can no longer be subject to inactivity fees, you may still be charged for the annual fees on your credit card and for any outstanding balances you’ve accrued. 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. First off, if you’re ignoring credit card debt or letting it accumulate it can 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. If you decide to go this route, just keep in mind that a closed credit card can 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 may negatively impact your credit score.
Should I close a credit card I don’t use?
Generally, it’s not advisable to close a credit card you don’t use, especially if it’s an older account. Keeping the card open can positively impact your credit utilization ratio and the average age of your credit accounts, both of which are factors in calculating your credit score.
However, if the card has an annual fee and you’re not using its benefits, it might be worth considering closing it. Before making a decision, weigh the potential impact on your credit score against any fees or inconveniences associated with keeping the card active.
How to keep your credit cards active
Keeping your credit card active doesn’t require additional heavy lifting on your part. 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’s always active. Paying the debt on time will help 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.
Building Credit Wisely and Avoiding Debt Traps
While it may seem counterintuitive, not using your credit card can lead to various unintended consequences. From potential account closures to missed opportunities for building credit, inactivity can impact your financial health.
To maintain a healthy credit profile, consider using your cards periodically for small purchases and paying off the balance promptly. Remember, responsible and regular credit card use can be a valuable tool in your overall financial strategy.
FAQ
How long can you go without using a credit card?
You can go without using a credit card for an indefinite period without incurring fees or penalties. However, to maintain an active account and preserve your credit score, it’s advisable to make occasional transactions, even if they are small, to prevent account inactivity.
Is it bad to have a credit card and not use it?
It’s not inherently detrimental to have a credit card that you don’t use frequently. However, it’s essential to understand that not using a credit card may result in missed opportunities for rewards and benefits. To make the most of your credit card, consider occasional usage for small purchases while maintaining responsible financial practices.
Will my credit limit decrease if I don’t use my credit card for a long time?
Typically, your credit limit doesn’t decrease solely due to inactivity on your credit card. However, credit card issuers may periodically review and adjust credit limits based on your credit history and financial circumstances. To safeguard your credit limit and enhance your credit score, it’s advisable to use your credit card responsibly and ensure that the account remains active.
What happens if you stop using a credit card?
The issuer may close your account due to inactivity, which can negatively impact your credit score by reducing your available credit and potentially shortening your credit history.
What happens if I don’t use my credit card for a year?
Your account may become inactive, leading to potential closure, reduced credit limits, or loss of rewards. Some issuers may also charge inactivity fees or cancel your rewards points after extended periods of non-use.
