What Happens If You Don’t Use Your Credit Card
Credit cards are great ways to keep your bank account safe compared to debit cards. You don’t have to worry that someone can steal your card and access the funds in your checking account.
With a credit card, you’re buying things on credit, meaning you don’t need to have the money now. You have time to pay the credit card bill later.
The downside of a credit card account is that you can buy things you can’t afford. Even if you pay off a small amount of your bill monthly, the remaining credit card balance will accrue interest that raises the bill.
Over time, with only minimum payments, you can end up owing more than the items initially cost.
However, there are many benefits to having a credit card. You can earn rewards, build your credit score, and have access to more credit in case of an emergency.
If you have a credit card you never use, you might wonder if it’s worth keeping. Find out what happens if you don’t use your credit card to decide what action you should take.
What Happens If You Don’t Use Your Credit Card
You Can Miss Fraudulent Activity
Someone could use your credit card even if they didn’t steal the physical item. They can get your credit card number and use it for online purchases.
If you’re not using your credit card, you might stop looking at the statements or logging into your account because you know there should be a zero credit card balance.
Even if you don’t use your credit card, you should keep an eye on every open account. Someone could charge a lot of money to your card without you noticing, and you’d be liable for it until you open a fraud investigation.
You Might Incur Fees
Some credit card issuers charge annual fees. Even if you’re not using the card, your account will accrue the cost for each year the account is open.
You should check the fine print of your agreement because some companies waive the price for the first year or two of a new account.
If your credit card issuer charges an annual fee, you can start using the card again to make the rewards worth the cost. Otherwise, try contacting the company and asking if they’ll waive the annual fee until you start using the card again.
Company Closes Your Account
They could offer that credit to another consumer who purchases with the card, making the credit card issuer more money.
The company doesn’t legally have to notify you that they will close your account. Read the fine print of your agreement and see if it states how long you can remain inactive without facing a closure.
Some allow a year of inactivity, but others close more quickly. Contact the company and ask if you can’t find the relevant information.
You Lose Credit Card Rewards
Some customers choose a specific credit card account because of the rewards they offer. You might get cash back on each purchase or earn points towards flights or hotel stays.
Many people feel confident about their rewards because credit companies promise no expiration date, but that usually only applies to active accounts.
You lose all stockpiled rewards if the company closes your credit card account. Contacting the company to determine how long they allow inactive cards to remain open will give you a timeline. You can work to use all your rewards before they close your card.
Or you can continue to make a few small purchases with the card to keep it open and accrue more rewards.
Your Credit Score Drops
The credit card issuer closing your account can negatively impact your credit score. Your credit score includes your maximum credit limit through all accounts you own. If you have two credit card accounts, each with a $1,000 line of credit, your maximum credit limit is $2,000.
If you stop using one of those cards and the company closes it, you’ve cut your credit limit in half.
When your active card has a balance of $500 on it, your credit utilization ratio increases. You still only owe $500, but your credit score decreases because you only have a $1,000 credit limit.
That $500 balance means you’re using 50% of your credit, while previously, you only used 25%. That makes you look like a credit risk because the ideal maximum is just 30%.
It looks good to lenders and creditors to see that you have a high credit limit but don’t utilize much of it. Using too much credit makes it look like you don’t have the funds to pay for things, so you look like a risk.
Keeping all lines of credit open, even if you don’t use them, allows you to have a lower credit utilization percentage, boosting your score.
Your Credit History Stops Aging
If the credit card you’re not using is one of your oldest, it’s worth continuing to make small purchases to keep your credit history active. The length of your history boosts your score, as does the age of each account.
Fifteen percent of your credit score is your credit history, so having older cards will improve your standing. The closed account stays on your credit report for some time, but they eventually fall off due to inactivity. At that point, your credit score will decrease.
The length of your credit history includes the age of your oldest account, the average ages of your accounts, and how long it’s been since you opened a new account. Having an old card open looks good for your credit score because it shows you can maintain credit.
A short average age and recently opened new account raise red flags because it looks like you use an account and close it because you can’t pay for it, then you need to open another.
You can check your credit history annually by getting a free report from credit bureaus like TransUnion, Experian, or Equifax. You’ll see your credit score and account ages on the document.
You Can Still Charge Recurring Payments
If you stop using a credit card, cancel any recurring payments linked to that account. It’s easy to set up automatic payments for your utilities and subscription services because you won’t risk missing a payment or paying a bill late.
However, if you stop using the credit card linked to those purchases, ensure you find another way to pay for them. Otherwise, those services will continue charging your inactive credit card.
You’ll owe the balance, even if you’ve stopped checking the statements because you’re not physically using the credit card when you shop.
Unpaid Balances Accrue Interest
You might stop using your old credit card without realizing there’s an unpaid balance. Or you might stop using your card because there’s a massive outstanding balance you can’t handle.
Regardless of the reason you stopped using a card, you’re still responsible for anything owed above zero balance.
If you stop looking at the statements, you might not realize that a small balance remains.
Credit card companies make money by charging interest on purchases. Even if you have a low balance, it’s going to accrue interest every month you don’t pay.
Those interest fees add up, so if you stop looking at your statements for a year, you’ll eventually face a massive bill of interest charges and late fees.
How To Keep Your Credit Cards Active
You can keep credit cards active by using them for a small purchase every few months. Keep it in your wallet, and when you start to pay cash for an item, use your card instead. If it’s always with you, you’re more likely to use it and keep it active.
If you’ve set up automatic payments on your credit card, you might prefer to keep them linked and pay off the balance. You’d spend that money on the bills anyway, so this method will keep your credit card active and improve your credit score.
Automatic payments and their billing cycle can work in your favor. You can pay for subscriptions like Netflix or Hulu with your unused card. Then, automatically pay off that credit card from your checking account. This method ensures you don’t forget to pay the credit card and accrue interest fees.
Tips for Responsible Credit Card Use
Acquiring too much credit card debt can negatively impact your income, savings, and quality of life. Some people end up filing for bankruptcy, but there are credit counseling agencies that can keep you from taking that step.
It’s beneficial to keep your credit card open if you can use it responsibly. These tips will help you maintain an active line of credit without accruing interest fees, late charges, or ruining credit scores.
Should You Close Unused Credit Cards?
One of the things that can happen if you have an unused credit card is that the company closes it. They don’t make money from a line of credit that’s not getting used, so they want to offer that to someone else.
However, nothing’s stopping you from closing an unused card on your own. You don’t have to wait for the arbitrary time limit the credit card company follows if you close it in a timely manner.
There are a few things to consider before closing an unused credit card account. First, you should make sure it’s not your oldest account. As previously mentioned, the age of your oldest credit line has a positive impact on your credit score.
If you want to close a credit card just a few years old, it won’t have much of an effect on your credit score.
You also want to ensure your credit utilization ratio won’t surpass 30%. If you have an impressive credit line with this card, closing it could cause that percentage to rise into the danger zone.
Think of why you opened the credit card before you close it. Maybe you wanted the cashback rewards or to earn points for your vacations. If the card has good incentives, you should keep it for bills or a recurring charge to continue getting the perks.
It’s never a good thing to have a credit card you don’t use because it’s susceptible to fraudulent purchases and can lower your credit score and darken your financial picture. Instead of closing an account and raising your credit utilization, consider using the card responsibly.
You can benefit from the card with rewards and a high credit score without exceeding your budget, which is a big deal.