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Credit Card Inactivity Affects your Credit Score? Here’s What You Should Know! 

Credit Card Inactivity Affects your Credit Score? Here’s What You Should Know! 

May 18, 2022
5 min read
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Credit Card Inactivity Affects your Credit Score? Here’s What You Should Know!
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Nowadays, people have multiple credit cards in their wallets. Although experts say that it is always a good idea to have a variety of cards, in reality, it seems to be a daunting task to manage all of them efficiently.  

With several card options, you end up using a particular card and neglect the others or two, and consequently, they remain unused for an indefinite period. After a certain point of time, the bank may consider your account “inactive” and it may be ultimately closed.

You must keep in mind that when it comes to credit cards, it’s essential to showcase that you can handle financial commitments tactfully. This involves being able to use credit cards responsibly by paying them off on time.

Here, in this article, we’ll discuss a few things you should know about your credit card inactivity. 

How an unused credit card can bring down your credit score?

When applying for a loan, the first thing that banks or rather lenders tend to do is- take a look at your credit score. Remember, a good credit score is one of the major requirements to be eligible to apply for credit cards and loans. 

Now, a credit score is dependent on several factors. And one of them is having a couple of credit cards, especially if you use them responsibly and ensure that you make the repayment of all of them on time.

However, having multiple cards is pretty good as long as you don’t forget to pay a specific bill. It might be just another mistake on your part, but the credit bureau will not consider that. Under such circumstances, people end up using specific cards alone while rendering a few inactive. An inactive credit card is not a matter of concern, but the period of inactivity is. 

The key takeaway here is- If the cards remain inactive for a long period of time, it can negatively impact your creditworthiness.

Can a credit card be closed due to inactivity? 

The short answer is yes. When your card remains unused for months or even years, the lender may close your account. And once your account closes your credit utilization rate increases, ultimately leading to a poor credit score. Your credit utilization accounts for 30% of your credit score. So, if your credit account is closed, that credit is no longer considered in your credit utilization. 

How long can an account be inactive until it’s closed permanently?

This entirely depends on the bank or the lender. A credit card may be considered to be inactive if there aren’t any new purchases on the card in the recent past. In such a scenario, you can always reach out to the bank to learn more about their policies regarding account inactivity. 

Will a prior notice be issued before the account is closed?

Not every time. You must keep in mind that credit card companies aren’t bound to give you any prior notice that they’re closing your account. Some companies can even close your account first and then, later on, inform you about your account being closed. According to the Credit Card Act of 2009 lenders are expected to provide customers with 45 days’ notice of major changes to their account, but that is non-inclusive of card cancellation notification because of inactivity.

Can this affect your credit history? 

Here’s how a credit card canceled due to inactivity can affect your credit history:

  • Firstly, the cancellation may directly impact your debt to credit utilization ratio, which happens to be the amount of credit you're using as compared to the amount of credit available to you. As a thumb rule, lenders are always in favor of a lower credit utilization ratio.
  • Secondly, lenders prefer to see that you are tactful enough in handling various types of credit, such as installment loans and credit cards. For instance, if you have only one credit card and it is canceled due to inactivity, it may impact the variety of your credit types, which, in a way, affects your credit scores.

You must also note that a closed account isn’t immediately removed from your credit reports. Even if you have paid the debt completely, it can continue to reflect on your credit reports for up to 10 years.

How to keep your credit card active without affecting your credit score?

This one’s simple. All you have to do is make small purchases in order to keep your credit card active. These small charges can have a positive impact on your credit score, especially when you repay the full amount before the due date. Not just that, it also showcases that you’re a responsible cardholder. 

Bottom Line 

At the end of the day, your credit score and your accounts belong to you and you have dedicated your precious time and energy to decide what’s good for you and what’s not. Therefore, before you get into a new credit agreement with anyone always think wisely, while paying extra attention to what it may do to your score as well as how you will handle your account efficiently.