Let’s imagine that you opened a credit card, but you stopped using it after you got the reward. What will happen next? If you do not use a credit card, the card issuer can close your account. You’re more susceptible to fraud if you’re not vigilant about checking up on the inactive card, and fraudulent charges may affect your credit rating and finances. While not much occurs if you do not use a credit card for a month, you should consider closing an account if you plan to allow it to sit idle indefinitely.
Your card may be canceled
Credit card companies make money from credit cards in many ways, involving late fees, annual fees, interest fees. But the main source of income is the processing fees that they charge merchants every time you will swipe.
Unused credit cards do not make any money and an open credit card account costs money for maintaining and monitoring. So, the most common outcome of allowing your card go unused is that the card issuer cancels your unused credit card and closes the account.
There’s no difficult and fast rule as to how long a credit card company will let you keep your unused credit card on ice. Not do they determine when the time is right, but they aren’t needed by law to give you notice.
While it can look like no big deal if the issuer cancels a card you are not using, a canceled card may hurt your credit score in a couple of ways:
- Your credit use ratio can raise: This’s the 2nd most essential factor in calculating your credit score as well as measures the amount you owe in relation to available credit. Imagine that you possess 3 credit cards, each card has a credit limit of $5,000, which will give you $15,000 in total available credit. If you owe $2,500 on 2 of the cards, that means you’re using $5,000 of the available $15,000, or 33 percent. Let’s visualize that you have nothing on the 3rd credit card, which got canceled because you didn’t use it. That leaves you with $10,000 in available credit and so your total credit use jumps to 50 percent. The objective is to keep your use as low as possible, and a canceled card works against that.
- The credit card account stops aging: A key factor in the credit score is the length of credit history, which involves the age of the old account as well as the average age of all accounts. While a canceled credit account will not drop off your credit report instantly, that account does stop aging. This can make your average account age go down, particularly if the canceled card is one of your old accounts.
Even there is no guarantee that an unused credit card can be canceled, but closing cards that are not active is a normal practice. Until you are sure the closed card will not cause an issue. Or you are paying an annual fee for a card you’re not using try to use all your credit cards for a minimum of some months to keep the accounts active and your payment history fresh.
Overlooking Fraudulent Activity
One dangerous risk of not using a card is, you can stop looking at statements, too. Failing to monitor your account can leave you in the dark about fraudulent activity. With a card out of sight and mind, you can miss seeing a fraudulent charge unless long after it happens. You aren’t going to be nearly as probably to stay on top of what is occurring. The longer you overlook the card, the more damaging fraudulent activity may become.
The Danger of Having an Account Closed
The other risk of leaving a card inactive is the issuer can decide to close the account. If you have not used a card for a long period, it won’t hurt your credit score. However, if a lender notices inactivity and then decides to close the account, it may cause your score to slip. That is because losing a source of credit impacts your credit use ratio a measure of how much credit you utilize in relation to total available credit. And if the card is one of your old credit accounts, that may low the age of your credit history, bringing down the average age of the accounts in the report and lowering the credit score. Another consequence of having an account closed is that you can lose any rewards like airline miles associated with the account.
You Miss Fraudulent Charges on the credit Card
If you have not utilized a card in a given month, it may be tempting to assume everything is better. But that can leave you vulnerable to overlooking any fraudulent charges that can go unseen for weeks/months. It may be a better idea to online or on the app for the card to ensure nothing seems suspicious. Not using your card may hurt your credit in the long run if you aren’t familiar with unauthorized charges.