If you are juggling multiple credit cards or have credit cards you have stopped using, you may be wondering what happens if you don’t use your credit card. There are a few potential consequences to consider. For example, your credit card issuer might cancel your card, which could cause your credit scores to take a hit. Or, you may overlook fraudulent activity because you are not checking your balances regularly. We will provide an in-depth breakdown of what could happen if you do not use one or more of your credit cards and what to consider before closing a credit card account.
- Not using your card may seem harmless, but it can have surprising effects on you, including a drop in your credit scores or your reward points expiring.
- You can keep your credit cards active by making small purchases on them every once in a while or setting up recurring charges.
- Depending on your financial circumstances, there are situations where it may make sense to close your account.
Breaking Down What Happens If You Don’t Use Your Credit Card
1. You May Be Susceptible to Fraud
If you are not using your credit card or regularly checking your accounts, you risk unknowingly becoming a victim of fraud. The Federal Trade Commission (FTC) reported 389,945 cases of credit card fraud in 2021, amounting to a total loss of $32.34B suffered by credit card issuers, merchants, and consumers.
If you have never been a victim of credit card fraud, you might not immediately realize that someone is using your card to make unauthorized purchases. The longer it takes for you to notice fraudulent activity on your account, the harder it gets to stop it and the more consequences you may face. If you are not paying close attention, this could go on for months and wreak havoc on your credit.
We recommend checking your credit cards at least once a month even if you are not using them as a measure of precaution. Otherwise, it can be easy to miss potential charges that appear on your billing statement or accidentally miss a payment. That can include annual credit card fees, subscription services, membership fees, etc. Alternatively, you can set up an account with Mint, Personal Capital, or another third-party app that aggregates all your credit card information in one place. Currently, I have all my cards linked to Mint to review my spending habits every month.
2. Your Card May Get Canceled
Credit card companies make money from credit cards by charging annual fees, interest, late fees, and processing fees. One of their main income sources is from processing fees. Whenever you swipe your credit card, card issuers charge the merchants a fee. If you are not using your credit card, the credit card issuers are not making money off of you. Instead, the open credit card account is costing the issuers money to maintain. So, after a long period of inactivity, the card issuer will usually cancel your credit card and close the account to cut costs.
The exact length of time you have before your account gets closed depends on the specific card issuer. Some may close your account after 6-12 months of inactivity, while others may keep your account open for a couple of years. While federal law requires credit card companies to notify you when they make major account changes, they are not required to warn you when they are about to deactivate your account due to inactivity. However, some lenders may give you a second chance to use your card to encourage you to keep your credit line open.
Note that there are exceptions depending on the state where you reside. For example, in California, card issuers are required to give you 30 days’ notice beforehand. Contact your lender to find out how long you have before your account gets deactivated if you choose not to use your card.
If you have multiple credit cards or various types of credit available, closing an account may have minimal impact on your credit. But, if you have a low overall credit limit or short credit history, that could negatively affect your credit scores.
3. Your Credit Scores May Drop
If your card gets canceled, your credit scores may take a hit. Credit utilization is one of the main factors in your credit scores. It gets calculated by dividing your total credit card balances by the sum of your credit limits. Lenders want to see you managing your credit responsibly. If you have a high utilization ratio, lenders may see that as a sign you are struggling financially.
Generally, experts recommend keeping your credit utilization rate below 30%, though the lower, the better. Having multiple credit cards increases your overall credit limit and makes it easier to maintain a lower credit utilization ratio. Typically, I keep my credit utilization below 15% to be safe.
If one of your credit cards gets canceled, your total credit limit decreases, which could increase your utilization rate and damage your credit. For example, if you have 3 credit cards, each with a credit limit of $4,000, that gives you $12,000 in total available credit. If you owe $2,000 on 2 of the cards, you are using $4,000 of the available $12,000, or ~33%. If your third card gets deactivated because you are not using it, that leaves you with only $8,000 in available credit. Your credit utilization then jumps to 50%, well above the recommended 30%.
Additionally, if you close one of your credit card accounts, your account stops aging. The length of your credit history is another crucial factor in your credit score calculations. If the card that gets canceled is one of your oldest credit accounts, that could bring down the average age of your accounts, thus lowering your credit score.
4. You May Still Be Paying Annual Fees
In the past, credit card companies charged consumers credit card inactivity fees if they didn’t use their cards for long periods. However, in 2010, the Federal Reserve banned this practice. But, certain credit cards charge an annual fee to keep your account open. To get the most out of a card with an annual fee, you need to earn more in rewards than you are spending each year on the fee. If you are paying an annual fee for a card you are not using, the fee probably is not worth it since you will be losing money.
5. Your Rewards May Expire
Most credit cards have rewards programs, such as cashback or travel credits, that get tied to the account. If you stop using a card with these rewards, you may lose some or all of your points or miles. Check your credit card’s borrowing terms or verify with your lender to clarify what will happen to your rewards if your account gets closed. That way, you can cash them out before you completely lose them.
How to Keep Your Credit Cards Active
We recommend using your card occasionally to keep your account active and checking your bank statements monthly for fraudulent charges. One way to keep your card active with minimal effort is to make a recurring charge on the account, such as a monthly phone bill or subscription service. For one of the credit cards I use less often, I set my Spotify subscription fee to the card to ensure it gets used at least once a month. Alternatively, you can use the card for smaller purchases if you are worried about high-interest rates. For example, you can use the card to buy boba once a week or use it for takeout once a month.
If you make regular transactions on your credit card, even if it is only once a month or once every couple of months, and pay it off in full, that demonstrates you can use your card responsibly and boosts your credit. Paying your balance in full at the end of each billing cycle also ensures you will not get charged high-interest rates.
How Long Can You Go Without Using a Credit Card?
There are no set rules or standards for how long you have before a lender closes your account due to inactivity. If you forget to use your credit card for a couple of weeks or months, that should be no problem. However, if you go months or years without using your card, you may want to reach out to your credit card company about its unused credit card policy. That way, you can avoid any surprise account closures.
When to Close a Credit Card
If you are not using one or more of your credit cards, take some time to understand why you are not using them. Do you prefer cards with better rewards? Are you afraid of high-interest debt? Do you have any incentives to use the card?
Depending on the circumstances, closing an unused credit card may have minimal impact on your credit. For example, if it is not your oldest credit card or there is no clear incentive to keep using the card, it may be time to close it.
When used strategically, credit cards enable you to build credit and set yourself up for financial success. For example, I applied for the American Express Gold Card last year because of the referral bonus, welcome bonus, and rewards structure (4x points on dining and groceries). Despite the $250 annual fee, I quickly recouped the expenses via these benefits and others, including dining, hotel, and Uber credits.
Other benefits to consider when deciding which credit cards to acquire or keep include car rental or travel insurance, airport lounge access, no fees on international purchases, low-interest charges, etc. Weigh the benefits and risks carefully to determine when you should close an unused credit card.
Incentives For Using Credit Cards
If you do not feel like you have enough incentives to use your credit card, you may want to do some research to find a credit card that better matches your spending habits and financial situation. There are plenty of credit cards in the market, giving you more opportunities to find ones that best meet your needs.
The best way to decide what credit card is best for you is to review your spending habits and identify what rewards would benefit you the most. For example, if you are a frequent flyer or travel abroad often, look for a credit card with competitive travel rewards. If you regularly shop at specific stores, such as Amazon, chances are they have a retail credit card you can use on purchases and get rewarded for them.
Different Types of Credit Cards Have Different Benefits
As we mentioned earlier, you can choose from many different types of credit cards. Each type of card has its own set of benefits and drawbacks. Here is a brief overview of some of the most popular types of credit cards.
- Travel Rewards: These cards offer rewards for people who travel often. Travel rewards cards usually have no foreign transaction fees and offer incentives such as priority boarding, complimentary airport lounge access, and hotel discounts. However, you may need to spend a certain amount or pay an annual fee to receive these benefits.
- Cash Back Rewards: These cards offer rewards points for every dollar spent using the card. If you want a variety in the rewards you earn for everyday shopping or do not want to pay annual fees, start with a card like the Chase Freedom Flex. Points earned can get redeemed for cash back, gift cards, travel expenses, etc.
- 0% APR Cards: These cards offer 0% interest on balance transfers for a promotional period (usually 12-18 months). That can be a great way to save money on interest payments if you are carrying a balance from another card with a higher interest rate. However, balance transfer fees may apply, so read the fine print before signing up for one of these cards.
Credit Cards Offer Flexibility
Life happens, and sometimes things go very wrong. If you have a credit card handy, you can use your credit line for emergencies to get you through the month. If you have multiple credit cards, you will also have more flexibility when making purchases. For example, many merchants do not accept Amex because of the higher processing fees. If you have another card, you can use that one instead. Or, if you are planning on traveling abroad, you may want to get a card that doesn’t charge foreign transaction fees. Otherwise, you will end up paying extra money every time you make a purchase.
Boost Your Credit Score
Having a higher credit limit can boost your credit score significantly. When I opened a credit card account for the first time, I had a $500 credit limit. That meant I had to keep paying off my bills multiple times a month to keep my credit utilization ratio low and avoid overusing my credit. However, now that I have multiple cards, I never need to worry about having a high utilization rate.
Typically, your credit card company will automatically increase your credit limit if you have a good payment history with them. However, if they don’t, you can request a soft inquiry to raise your credit line or open a new credit card. Over the past couple of years, my credit limits for some of my credit cards were automatically raised after I consistently paid off all my balances.
How to Use Credit Cards Responsibly
If you are worried about falling into debt, there are several steps you can take to prevent that from happening:
- Always pay your credit card balance off in full at the end of every billing cycle. That way, you can avoid getting charged high-interest rates. If you can’t make your payments, at least pay the minimum payment to avoid getting charged a late fee.
- If you notice that your utilization ratio is too high, pay off your balance during the billing cycle instead of waiting until the end. That way, your statement will end up showing a lower number than what you actually spent.
- Create a budget and stick to it. With credit cards, it’s easy to get carried away with spending. We recommend only spending what you can pay off at the end of each month.
Protecting Yourself From Identity Theft
Check your bank statements and credit reports regularly to monitor for fraudulent activity. The last thing you want is to allow an identity thief to max out your credit cards without you knowing or open lines of credit in your name. To protect yourself from fraudulent activities, review your bank statements every month. Make sure you recognize the purchases on your account and dispute anything you did not purchase.
To prevent new loans or lines of credit getting opened without your permission, review your credit reports at least a couple of times a year. You can get free copies of your credit reports from each of the 3 main credit bureaus (Experian, Equifax, TransUnion) at AnnualCreditReport.com. Keep an eye out for errors and dispute anything you don’t recognize.
The Bottom Line
If you aren’t using some of your credit cards, your credit will be unaffected as long as the accounts remain open. But, after a certain period, the bank may decide to close your account to cut costs and extend the credit to someone else, which could lead to unwanted consequences, such as higher credit utilization.
The easiest way to keep your unused credit cards active is to use them for small purchases or charge your Netflix subscription or other bills to them every month. As long as you pay off your balance in full every month, your credit usage will stay low, and lenders will see you as a responsible borrower. That will eventually open doors for you to get better terms and services and a wider variety of financial offerings.
No matter what you decide, make sure you avoid carrying a balance over every month. Unfortunately, credit card debt is expensive and can snowball quickly. If you are struggling with paying off your debt, come up with a plan to pay it off and set a budget that is realistic given your current financial circumstances.
At the end of the day, credit cards, like any other financial tool, are only as useful as you make them. As you plan out your financial future, determine how credit cards fit in and what the best use of them is.