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Not using your credit card can have negative effects, such as your issuer closing your account or accruing fraudulent charges you aren’t aware of. Decide carefully if the benefits of not using your credit card outweigh the consequences.
If you’re one of the millions of Americans looking to raise their credit score, you may think not using your credit card will help. After all, many people hurt their credit score by accumulating too much credit card debt. However, you may be surprised to learn of the potential negative consequences that can happen if you don’t use your credit card.
Read on to learn everything you need to know before you stop swiping your credit card regularly.
What Happens When You Don’t Use Your Credit Card
Credit card inactivity occurs when you don’t make any purchases with a credit card over a certain period. The credit card issuer determines this time period—some may be as short as six months, while others may be a year or longer.
Before you stop using a credit card, check the terms and conditions to learn what your credit card issuer considers credit card inactivity and their policy for closing inactive accounts.
There are several potential consequences for not using a credit card:
- Loss of rewards and benefits: Many credit cards include benefits or rewards such as cashback, airplane miles, points, and more. Not only will you lose the ability to earn additional rewards when you stop using your card, but not using your card may cause the rewards you have earned to expire. If you plan on restricting your credit card usage, consider cashing out your rewards to avoid losing any.
- Accumulation of forgotten balances: If you aren’t using it regularly, you may not realize your card is being charged for an annual subscription or other infrequent charge. These balances will add up and accrue interest, which can balloon your credit card debt and impact your payment history, lowering your credit score.
- Missed fraudulent transactions: If you aren’t regularly making payments with a credit card, you won’t be checking your bill, which means it may take longer to catch fraudulent charges. This can impact your credit score as you accumulate debt you aren’t aware of and you miss minimum payments.
- Decreased credit limit: Your credit card company may reduce your credit limit if your card is inactive for a long period. This can lower your credit score by increasing your credit utilization rate, which is not what creditors want to see.
- Account closure: Many credit card companies may close an account if there isn’t regular purchasing activity. This will hurt your credit score in several ways:
- Shortening your credit history by decreasing your credit “age”
- Increasing your credit utilization rate as your available credit decreases
- Minimizing your credit mix, especially if you don’t have many credit cards
An important note: credit card issuers can no longer charge inactivity fees (sometimes called dormancy fees) when you don’t use your card. If you incur an inactivity fee, contact your credit card issuer and the Federal Trade Commission’s Bureau of Consumer Protection.
Should You Close a Credit Card You Don’t Use?
Whether to close a credit card you don’t use depends mainly on the facts of your situation. Closing a credit card may hurt your credit more than help it, so consider the consequences carefully.
Closing a credit card is generally a bad idea because:
- It negatively impacts your credit utilization rate, which is the balance you are carrying divided by your overall available credit.
- It negatively impacts your credit history by lowering your overall credit age, especially if the card is one you’ve had for a significant amount of time.
- It limits your access to emergency credit options.
Closing a credit card may make sense if:
- You are trying to simplify your finances if you have too many credit cards for your needs.
- You are trying to reduce credit risk or struggle with bad credit card habits.
- The issuer charges an annual fee for the card.
If you decide to close a credit card, the process is fairly simple. Start by paying off your balance, redeeming any points or other rewards, and contacting your issuer.
Alternatives to Closing an Unused Card
In most cases, it’s better to keep a credit card than close it. Instead of canceling your unused credit card, consider the following alternatives:
- Downgrade to a version of the card with no fees. Contact your credit issuer and ask if there’s a lower-tier version of the card that you can downgrade to. Most lower-tier cards don’t have an annual fee, and you can maintain your credit history and utilization rates if you downgrade instead of canceling.
- Use your unused credit card to cover automatic renewals or occasional small purchases. Use your card to pay for monthly or annual subscriptions. Your subscriptions will continue uninterrupted, and you won’t have to actively use your credit card, which can help eliminate the temptation to use the card. Or, use your credit card for small purchases like the occasional coffee treat.
- Set up automatic payments to avoid missing payments. Prevent missed or late payments by signing up for automatic payments with your bank. If you opt to do this, ensure your bank account has enough to cover the monthly payments to avoid overdrawing your account and paying overdraft fees.
- Continue monitoring your accounts regularly. While the card may seem out of sight, out of mind when you aren’t using it regularly, continue monitoring your account. Check your balance online or on your app once a week or so to ensure there aren’t fraudulent charges on your card.
Protect Your Credit With Credit.com
If you’re trying to improve your credit or get out of debt, you might initially think not using your credit card is a good idea. While it can be an effective strategy in certain situations, the consequences of not using your card can lower your credit score. Consider carefully whether the consequences are better than keeping your card open. Whether you decide to close it or not, consider monitoring your credit score with Credit.com.
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