What Happens When You Don’t Use Your Credit Card?

• Not using a credit card can unintentionally lead to a change in credit score.
• Don't ignore your unused credit cards entirely.
• Be careful of fraud if you aren't using your credit card.

There are a lot of myths when it comes to credit cards. For example, it is a myth that maintaining a balance on your credit card will increase your credit score. Paying off your credit card monthly is better for your credit score and financial health.

Another myth is that not using a credit card will hurt your credit score. While there are ways this could eventually lead to a reduced credit score, the simple act of not using a card won’t affect your score at all. But there are nuances to look out for when you stop using your credit card.

Credit Card Account Closed

The first thing to consider when you stop using a credit card is that the bank that issued the card to you has every right to close that account due to inactivity. The timeframe for this is fluid, it depends on the bank, but it is usually after six months to 1 year of inactivity. After that, they will often close your card without warning as well.

Why does it matter that they might close your account? Two reasons. 

Credit Age

First, losing a card you’ve held for a long time will affect your “credit age.” Your credit age is how long you’ve had credit, and it makes up 15% of your credit score. An older credit age is better because the lender has a better idea of how you are as a borrower. By closing a long-standing account, you could lower your credit age which could lower your credit score.

Available Credit

Second, if a card is closed, it will reduce the overall amount of credit available to you. If you have a balance on other cards and closing that card increases the amount you owe to more than 30% of your total available credit, that can damage your credit score. Having credit utilization under 30% is optimal for a solid credit score, and that makes up 30% of your credit score.

So not using your card will not hurt your credit score, but if you allow it to be closed, just make sure it won’t significantly reduce your credit age or hurt your credit utilization rate. On the other hand, if you maintain the card as an active card but only use it infrequently, it can improve your credit score in the long run.

Recommended Reading: 3 Tips to Build and Improve Your Credit Score

Lose Credit Card Rewards

Depending on the credit card you use, the credit card rewards points or miles associated with that card could expire if the card goes unused. Naturally, this depends on the card, but if you have some miles saved on a card, it is probably in your best interest to use those rewards before letting that card go inactive. Even if the miles or points don’t expire, you can no longer access those rewards if the card gets canceled.

Interest Accrues

Before you stop using a credit card, you ought to zero the balance. Not reducing the balance to zero will have one of two effects. 

1. If you don’t have an automatic payment set up, the card will go into default, accrue interest at a high rate, and then go into collections, which will wreck your credit score.
2. If you do have the minimum balance auto-pay set up, then you’ll pay the most amount of interest possible on your balance before it is paid off. Either way, forgetting about a credit card with a balance is not smart regarding your credit score.

Paying the Annual Fee

While it is now illegal for a credit card company to charge an inactivity fee, many cards do come with an annual fee. This fee is charged regardless of how much you use the credit card. So before letting a card sit inactive for the long term, check if it has an annual fee. The annual fee is probably high enough that paying just to keep a lower credit utilization probably isn’t worth it.

Also, annual fees have to be paid off just like any other type of payment. Without an auto-pay setup, the annual fee could start accruing interest and balloon to an even larger debt payment. So, as a rule of thumb, holding an inactive card with an annual fee is counterproductive.

Recommended Read: What You Should Know Before Getting Your First Credit Card

Missing Fraudulent Activity

Lastly, it is important to consider that inactive cards are prime targets for fraudulent activity. If you aren’t regularly checking your credit card statements on an inactive card, you may be liable for fraudulent activity if you don’t report it quickly. Never assume that it cannot be defrauded just because you don’t use the card. The best practice is to check all your credit card statements every month, even if they are unused.

Recommended Read: Five Signs of Financial Instability

Tips If You Decide to Stop Using Your Credit Card

If you’ve decided to stop using a credit card, it is important to do it the right way. Here is a quick list of things to do if you’re going to stop using a credit card.

Zero Out Your Balance

Before you stop using your credit card, ensure you aren’t carrying a balance. Holding a balance on a forgotten credit card can wreak havoc on your finances and credit.

Turn Off Automatic Payments

You may have some automatic payments attached to that card that you’ve forgotten about. Go back over the last year of statements to make sure you have no monthly or yearly expenses set to automatically get paid for that card. That way, you won’t be charged interest if you forget to pay it off.

Consider Freezing the Card to Avoid Fraudulent Activity

Many credit card companies offer the option to freeze a credit card. This means that using your credit card would require you to call the bank and authorize them to unfreeze it before you can use it. If you aren’t regularly using your credit card, this is a great way to protect yourself from fraud.

Recommended Read: Protect Your Credit Card From Fraud

Set a Reminder to Use It Occasionally

Remember, if you don’t use a credit card, you could have your credit card account closed. While this usually isn’t a huge deal, it could impact your credit score. To avoid this, set a reminder to use the credit card occasionally. There are two approaches to this. 

1. Use the card every six months or so to make a purchase, such as groceries for the week or buying a pack of gum or water at the store. The purchase doesn’t have to be big. You just need to use the credit card so that it doesn’t become inactive.
2. Set up automatic payments to buy a small monthly subscription on that card and then set automatic payments to pay off the full balance. This way, you don’t have to worry about using it or paying it off. Either way, you can keep the card active without using it for everyday purchases, which will help you to maintain a high credit score.

The Money Wrap-Up

There are several ways that keeping an inactive credit card on hand can be beneficial, but only if the proper precautions are taken. When holding an inactive credit card, there are three things to keep in mind:

1. How will it affect your finances
2. How will it affect your credit score
3. The potential for fraudulent activity

If you can take steps to mitigate all of these things, then there should be no problem with keeping a credit card that you don’t use.