The privilege of credit card membership gives holders the means of making purchases on necessities or other goods and services when things are tight, but some holders put those cards on the shelf. It's easy to build more debt with the additional financing the cards offer and consumers are becoming more aware of their need to curb spending and reduce the amount of debt they will need to pay off. What happens when you don't use your credit card for extended periods of time? We have the answers here, with tips about how to best use this financial resource, recommended frequency of use, and the reasons why.
What happens if you don't use your credit card?
According to US News, putting your credit card on the shelf and not using it can help you to keep your monthly payments down, but there may be consequences for never using it again. It's okay to curb your spending to get that credit card paid down or better yet, paid off. Just don't forget that your credit card accounts do exist. It's essential to keep the accounts on your radar and to remember to check on them even after you've cleared the debt and bring them to a zero balance.
Activity is required to keep the account open
You don't need to spend a lot on your account to keep it open, but if your account becomes completely inactive for several months, the lender may believe that you no longer have an interest in the card or the services. Each lender has its own set of rules and requirements, but there is a good chance that the lender will close your credit account with the institution if there is zero activity on the account. If the lender closes your account, it could show up as a hit on your credit score. Simply not using the card will not impact your credit score, but it's important to know that when a lender closes an account, your credit utilization ratio is affected and it could make your score go down several points. Using the card for small purchases every now and then to keep it active can help you to avoid this pitfall. Even if you have multiple credit cards, it's wise to keep that activity going even if it's minimal. Any activity on the account will keep it open. One of the best reasons for keeping this card active is to preserve your credit rating.
What happens if you close the account?
Nerd Wallet reaffirms that simply not using the card doesn't impact your credit score, but what happens if you close an account that you don't want to use? Even if it is you who closes the credit card account vs the lender, it can have the same impact on your credit score as if a lender has done it. Your credit ratio goes down and you lose one resource for recording regular and on-time payments that is good for boosting your credit rating. A closed credit card account will remain on your credit report for several years though. This is a positive that shows your creditworthiness and how well you made your payments, however, once it comes off the score, it an impact your credit utilization ratio.
If you don't want to use a credit card, but you don't want to chance having your credit score affected, there are a few things you can do to void the problem. You can call the lender and ask for a different plan. You may request a card from the same issuer that better fits your credit needs including upgrades or downgrades. The second option to closing the account is to make small recurring charges, such as paying a bill, just to keep it active, then remember to pay it monthly for the benefit of activity. The third option is to replace the card through another issuer with a new account that fits your lifestyle. Make sure that the credit limit is equal to to card you're planning to close. When the new card is approved, you can close the unused card without taking a big hit on your credit score. The truth of the matter is that some credit cards are not worth keeping, but you must manage your credit wisely to preserve your scores.
Another reason NOT to ignore a credit card account
An inactive credit card account is one that you're not likely to think about or to review periodically. This opens the door for credit card fraud. It's all too easy for hackers to gain access to inactive accounts and to use them to rack up charges that take them over the maximum limits. Even if you don't use a credit card account, you need to stay on top of any activity that may appear on the account so you don't become the victim of credit card fraud.
Redeem any earned points before you close an account
If you have a credit card account and you really don't want or need to keep the account open, you can use one of the alternatives we discussed to protect your credit score from taking a hit, but there are a few considerations to make first. According to The Wallet Hub, it's wise to see if you have any rewards points coming first. Before you close a credit card account, make sure that you use any points or rewards in advance. Closing the account could result in a loss of the benefits. This could include any mileage or cash back options that have not yet cleared the account.
Most credit card companies won't cancel your credit card unless it has been inactive for somewhere between 6 and 12 months. It pays to read the disclosures supplied on the account at the time that you opened it. It's okay to maintain a zero balance for several months, but you don't want your account closed by the issuer. If you do decide to close the account, follow our tips to protect your credit rating.
Written by Allen Lee
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