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Not using your credit card for a long period of time can have some serious consequences. Here's some possibilities that can happen and whether you should chose to cancel that card.
You got a new credit card because of that great introductory offer? Great. But now that you’ve got the reward, your credit card has been inactive. Hasn't it?
Or maybe you want to get your finances back on track so you’ve put your credit card on hold for a bit? Smart move.
If you’re in any of these situations, we bet you’re not alone. Especially with the recent digital push, BNPL schemes, e-commerce offers and more, which has led to the growth of the credit card user base in India to a whopping 73.6 million!
But now the question is, what happens when you don’t use your credit card for a long time?
Credit cards are used for a variety of expenses, including regular purchases, significant one-time expenditures, debt transfers to take advantage of cheaper interest rates, increasing credit scores, and more.
But leaving it unused for an extended period of time may have negative consequences for your credit score and finances.
Let’s dive right in.
If your credit card is inactive for a long time:
1. Nothing will happen.
As long as you continue to pay the bills for any recurring monthly expenses, nothing should happen if you don't use your credit card for a while. In fact, putting your credit card away for a bit could be a wise move if you're trying to figure out your finances and need to take a break from using it to make purchases.
2. Credit card companies can’t charge you for inactivity.
In the past, card issuers had the right to impose fees on cardholders who did not use their cards. But that’s not the case anymore. Credit card issuers can no longer charge inactivity fees or fines.
3. Your rewards may expire.
Depending on how long your account has been inactive, some credit card rewards and benefits may expire. Besides, if your account is closed before your awards are redeemed, you lose them all.
4. Interest will be charged on your unpaid balance.
Interest will continue to be charged on any unpaid balances from before you stopped using the card. After all, it won't go away just because you're ignoring it.
If you don't make at least the minimum payments required on your card, you'll suffer consequences. Like late penalties and a potential decline in your credit score. To prevent piling up too much credit card debt, keep paying down your balance even if you need a vacation from making purchases with your card.
5. You’ll waste money on annual fees to keep the card open.
Not using your credit card won't relieve you of paying an annual fee if your credit card has one. You need to be earning more in rewards than you are paying out each year in the annual fee in order to get the most out of it. Additionally, if a credit card that you pay for doesn't yield any benefits, you will continue to lose money on it over time.
6. You may overlook card theft or fraud.
Not using your credit card could have serious consequences, one of which is missed fraud. You won't be nearly as likely to stay up to date with what's happening. If your card information or card is taken and you aren't checking your account, you might not immediately notice fraudulent activity.
Fraud is more difficult to stop and has more potential negative effects the longer it goes unnoticed.
Create account alerts to stop fraud. There are numerous warnings provided by credit card companies that go off if your card is used. The option to receive email or SMS notifications for "suspicious behaviour" or for all credit card transactions is frequently available.
7. Your credit score may drop.
Credit cards, if left unused, won’t really affect your credit score. But the game changes once you decide to cancel it. Cancelling your credit cards with the highest credit limits could potentially cause the most harm.
Usage of your credit, often known as credit utilisation, is the second-largest factor affecting your credit score. It is computed both per card and overall. Using less than 30% of your whole credit limit is advised by personal finance experts. Those with the highest scores typically use less than 10%.
To understand it better, picture this: you have two credit cards with ₹50,000 and ₹30,000 credit limits, respectively. Your overall credit limit will be lower once you close the first card, which will increase your credit utilisation ratio.
The credit utilisation ratio is reduced and your score is consequently lowered when you keep an unused credit card open. With credit, the older it is, the better.
Check out : Poor Credit or No Credit: Which One is Better?
8. Your credit card company may close your account.
Your credit card company may decide to terminate your account if it is inactive for a long time. While there isn't a set period of time, they often send notice ahead of time, so you have an opportunity to use your card first. Unused credit cards cause losses to banks.
There are several ways that account closure can be detrimental. By removing one of your credit lines, it leaves you without access to emergency funds and spending power. Your credit utilisation rate suffers as well.
Should you close a Credit Card you never use?
It’s usually not advisable to close an unused credit card, but it is acceptable to close one if:
- It's not the oldest card account you have.
- You won't use more than 30% of your available credit overall.
- There isn't a really strong reason to keep the card (e.g, rewards, cash back, low interest rate).
Sit back and give it a thought. Take up incentives first. If the card is never used, ask yourself - Is there a compelling reason to keep it open? Is there the chance to utilise cash-back opportunities? Are there any remaining travel miles? If it's a no and your credit score is not much at risk, you can safely close it.
Get credit cards strategically. Consider moving to a new card with a better offer to use it, such as a sizable welcome bonus or an initial APR of 0%.
Additional advantages of using credit cards for regular transactions include improved fraud protection and security, no fees for foreign purchases, car rental or vacation insurance, and more.
The bottom line is that you should keep all the above-mentioned points in mind before leaving your credit card lying around just like that. You probably don’t want to hurt your credit score, which is why your oldest accounts should be kept active to increase the duration of your credit history.
Making at least one minor purchase every few months and paying it off completely before the end of the billing cycle is the simplest approach to maintaining an account that isn't used frequently.
Find out 6 Sure Shot Ways To Pay Off Credit Card Bills Fast. In this manner, credit bureaus are able to see your responsible credit behaviour and your credit usage will continue to be minimal.
If you want to read more about credit cards, check out this page.