Have you ever heard the phrase "use it or lose it"? A lot of the time, to be honest, I don't know exactly what "it" is. I do know, however, that this maxim can apply to your credit cards. Leaving your credit cards unused can be potentially harmful to your credit health, and if your credit card issuer determines that your card has become "inactive," it may even close your account. Find out more below about how this can happen, why it matters and what you can do about it.
What is "active"?
It's no secret that card issuers profit from things like annual fees, interest charges, and other finance charges when consumers use their cards. Unused credit cards are also a potential liability if the account information ends up in the hands of identity thieves, which is another reason why issuers may close inactive credit cards. Keep in mind that you do not need to carry a balance to keep an account active - card issuers also make money through "swipe fees," so just using your card a few times a year can be enough to keep it open. The exact inactivity period is up to the card issuer, however, and the Equal Credit Opportunity Act does not require issuers to give you advance notice of accounts that are closed for inactivity.
Why does it matter?
An inactive account may harm your credit for a handful of reasons. After a few months of inactivity, your lender may stop providing updates to the credit bureau regarding your account. Continuing to use your open accounts is a great way to help keep your credit card utilization in a healthy range. If your card ends up closed, the total amount of credit available to you will be reduced, which could skew your credit card utilization rate upwards and cause your credit score to fall. Additionally, if you've had the card for a while, the closure could negatively impact the average age of your accounts. This could also potentially reduce your score.
What can I do?
Here are a few tactics for avoiding inactivity:
- Think about setting up a small recurring subscription fee (like Netflix or Spotify) on the credit card you wish to keep open and active. You may even be able to link the card to your checking account so the bill is paid automatically. This will ensure that your card stays active without the need for much additional thought or effort. This trick is especially useful if you have older cards you don't use as much, whether it's because of a high APR or limited rewards program. As always, it's important to make sure you pay your bills on time, and then, if you'd like, you can leave the card somewhere you won't be tempted to use it, like your sock drawer.
- If you carry the card around only for emergencies, you could make efforts to use it at least a few times a year anyway. Stay on top of your finances so you'll be able to notice when a card has fallen out of use. Then, every few months, you could use the card to buy a tank of gas or groceries. Use the card only to buy items you were going to buy anyway. Afterwards, you can pay the card off immediately so as not to accrue any interest.
- Consider avoiding cash or debit cards when there are better benefits associated with using your credit card. You may be able to earn rewards like cash back and bonus points while ensuring that your cards stay active at the same time. Many credit cards even have extra built-in protections, like trip insurance or extended warranties, so it's good practice to plan your purchases ahead of time and take full advantage of friendly terms.
- Choose carefully. When opening a new credit card account, be sure it's one you'll actually get some use out of. If you don't see yourself using the card at least once per year, you might not need the card at all.
Whether it is left open or closed by your lender, letting a credit card become inactive could negatively affect your credit score. Since your credit score can affect everything from your insurance rates to your apartment search, it's usually worthwhile to keep your accounts active so they're available when you need them. Stay a step ahead of the old maxim and use your cards now so you don't end up losing them later.
About the Author: Kayleigh Gaddor is the Community Manager at Credit Karma. Not content to stay in one place too long, she's most recently traveled to Hong Kong, Scandinavia and Hawaii. An avid reader and proud introvert, Kayleigh can usually be found with her head buried in her Kindle.
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