What happens if I don’t use my credit card?
Managing a credit card is a lot like getting married into a family of acrobats: you won’t have to take part in a highwire act, but you will have to practice balance. Overusing your credit cards can be bad, but an unused credit card can also have its downsides.
In other words, credit card debt is terrible and it is smart to avoid it. However, not using your credit cards at all can also have consequences that must be considered before you doom your cards to a life in lockdown. Here are two ways an unused credit card can lead to unexpected results.
1. Your card could be canceled
Credit card companies make money from credit cards in several ways, including annual fees, interest charges, and late fees. But the main source of income for card issuers is the processing fees they charge merchants every time you swipe your finger.
Unused credit cards don’t make money – and an open credit card account fresh money to maintain and monitor. So the most common result of leaving your card unused is that the card issuer simply cancels your unused credit card and closes the account.
There is no hard and fast rule as to how long a credit card company will allow you to keep your unused credit card in the ice. Not only do they determine when the time is right, they are not required by law to give you notice.
While it might not seem like a big deal if the issuer cancels a card you don’t use anyway, a canceled card can hurt your credit score in several ways:
- Your credit utilization rate could increase. This is the second most important factor in calculating your credit score and measures the amount you owe against your available credit. To illustrate, imagine that you have three credit cards, each with a credit limit of $ 5,000, giving you total available credit of $ 15,000. If you owe $ 2,500 on two of the cards, that means you are using $ 5,000 of the $ 15,000 available, or 33%. Suppose you don’t owe anything on the third credit card, which is canceled because you don’t use it. This leaves you with only $ 10,000 of available credit, so your total credit usage drops to 50%. The goal is to keep your usage as low as possible, and a canceled card works against that.
- Your credit card account will stop aging. An important factor in your credit score is the length of your credit history, which includes both the age of your oldest account and the average age of all of your accounts. Although a canceled credit account does not file your credit report immediately, that account does stop aging. This could lower the average age of your account, especially if the canceled card is one of your old accounts.
While it is not guaranteed that an unused credit card will be canceled, closing credit cards that are not active is a fairly common practice. Unless you’re sure the closed card won’t be a problem – or you’re paying an annual fee for a card you don’t use – try to use each of your credit cards at least every few months. to keep the accounts active and your payment history fees.
2. You could ignore card activity
At the same time, you ask yourself, “What if I don’t use my credit card?” Consider the question, “What happens with my unused credit card while I’m not looking?” »If you don’t use a credit card, you may not log into your account regularly. This opens the door to credit card fraud.
In the United States, 650,572 identity theft cases were reported in 2019, and 41.8% of those cases involved credit card fraud. If you’ve never been a victim of fraud, you might not realize that criminals sometimes take your credit card number as a “test” by buying something small. If this crime goes unreported, they know it’s safe to make larger purchases.
It’s also easy to miss other charges that appear and accidentally miss a payment. These include annual credit card fees and irregular payments for things like satellite radio, subscription services, and gym memberships. Missed payments cost you late fees and hurt your credit score. So even if you don’t regularly use your cards, be sure to keep an eye on your statements, just in case.
Make your card work for you
The point is, you usually have to use a credit card occasionally to keep it going. How often you should withdraw it is a matter of opinion, but making at least one small purchase every few months can prevent an otherwise unused credit card account from being closed. It will also encourage you to check your statements every month, which will make it easier to spot fraud or recurring charges.
The perfect way to use any credit card is to buy what you need, earn valuable rewards, and never carry a balance over to the next month. Whatever your current situation, you probably don’t need to stop using your credit card. Instead, you need to make it work for you – not the other way around.