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ToggleCredit cards are a great financial tool in today’s time. It provides you extra support when faced with a cash crunch at the end of the month and even makes your finances more manageable. But what happens if you get a credit card and don’t use it for months?
When you don’t use your credit card for a long period of time, it is known as credit card inactivity. The credit card issuer deactivates your card after crossing a set duration of time without using it. This duration of dormancy is different and depends from one provider to another. Usually, a credit card issuer will deactivate your credit card if you don’t use it for more than six months, but again, this period is different for different cards and banks.
If you don’t use your credit card for an extended period, there are several consequences that may happen, which may not fall in your favour. Below are some reasons why you should not keep your card inactive for a long time:
Inactivity fees on a credit card are charges that the card issuer may apply if the card hasn’t been used for an extended period, often spanning several months or a year. The purpose behind these fees is to motivate cardholders to continue using their cards regularly. While not every credit card company enforces inactivity fees, those that do usually include the specifics in the card’s terms and conditions. Being mindful of these fees is crucial, as they can accumulate over time and increase the overall expense of keeping the credit card.
Credit card companies often close accounts due to inactivity to help mitigate risks for the issuer. An unused card can be more vulnerable to fraudulent activity, as cardholders may not closely monitor an account they don’t regularly use. By closing these accounts, credit card companies reduce the chances of unauthorised use, which could lead to financial losses and damage to the company’s reputation. Overall, closing inactive accounts allows credit card companies to protect their interests while streamlining their operations.
If your credit card account remains inactive for a certain period, there’s a chance that some of your rewards and benefits could expire. Additionally, if your account is closed before you have a chance to redeem your rewards, you’ll forfeit them entirely.
Even if you haven’t used your credit card over the past few months, you still have to pay the annual fees if you want to keep it. To maximise your card’s value, your earned rewards should outweigh the annual fee. Otherwise, if you’re paying for a credit card that offers no real benefits, you’ll end up losing money over time. So, if you are paying the annual fees, you might as well just use the card.
If you don’t use a credit card, it generally won’t have much impact on your credit score. However, the situation shifts when you decide to cancel it. Closing credit cards with the highest limits can potentially cause the most damage.
Your credit usage, often referred to as credit utilisation, is the second most significant factor influencing your credit score. It’s calculated both for individual cards and across all your credit accounts. Financial experts suggest keeping your credit usage below 30% of your total limit, with the top scorers often staying under 10%. Keeping an unused credit card active can help lower your credit utilisation ratio, positively affecting your credit score. The longer you hold onto credit, the better it is for your score.
Interest will still accumulate on any outstanding balances, even if you’ve stopped using your card. Ignoring it won’t make it disappear. Failing to make at least the minimum payment could lead to late fees and a drop in your credit score. To avoid letting your credit card debt get out of control, continue reducing your balance, even if you’re taking a break from new purchases.
To keep your credit card from being deactivated, consider these practical steps:
If your credit card has been deactivated due to inactivity, here are steps you can take to avoid future complications:
Grasping the consequences of letting your credit card sit idle is crucial for managing your credit responsibly. To keep your credit score in good shape and take full advantage of your card’s benefits, it’s important to use it regularly and steer clear of inactivity fees.
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Neglecting to use your credit card can impact your credit score in several ways. When you don't use your card, your credit utilisation ratio decreases, which might prompt the issuer to close your account. This, in turn, reduces your available credit and can harm your score. To keep your credit profile in good shape, it’s important to use your card regularly and responsibly.
Credit card issuers may close accounts if they remain inactive for a prolonged period. If a card is unused for too long, the issuer might close it to reduce risk and manage their resources. This can negatively impact your credit score by lowering your available credit and changing your credit utilisation ratio.
Typically, there are no fees solely for not using a credit card. However, some cards might impose inactivity fees or have annual fees that apply regardless of whether the card is used. Furthermore, not using your card could result in account closure, which can indirectly affect your finances by reducing your available credit and potentially lowering your credit score.
There isn't a set timeframe, but generally, a year or more of inactivity might lead to account deactivation. The specific period can vary depending on the issuer.
Closing an old credit card, particularly one with a lengthy history, can hurt your credit score. It's usually better to keep such accounts open, even if you’re not using them actively.
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