Credit Card Kept Inactive For Long? Here's How It Impacts You

Credit cards have become essential financial tools for managing expenses and building a good credit score. Those who know how to use them well can earn lots of rewards by using them for transactions. In many cases, it is common for an individual to have multiple credit cards. While some may be preferred extensively for making payments, others may just be kept idle.  

Keeping credit cards unused may look like an inconsequential decision, but it can have certain consequences. Every bank has its policy regarding inactive credit cards.

Let’s take a look at the implications of not using your credit cards for a long time.

1. Declaration Of Dormancy

When a credit card is not used for a long period of time, it could be declared dormant by the issuer. The time period of inactivity could range from six months to one year. The exact policy regarding this can vary across issuers and they usually notify the cardholder before declaring a card dormant.

2. Banks May Close The Card

It is also possible that a credit card issuer may close your credit card if it is inactive for a prolonged period. Most banks will typically send reminders to cardholders to encourage the usage of the cards before deciding to close them. If you have a good credit history on the credit card, then its closure can negatively impact your credit score.

3. Annual Fees

Credit cards usually charge an annual fee and this will continue to be applicable even if a card is inactive. So, if you are not using your credit cards, you will continue to be charged the annual fees, thus incurring additional expenses.

4. Missing Out On Rewards And Expiry Of Reward Points

Rewards, cashback offers and other benefits are the key attractions of any credit card. When you don’t use your credit card, you miss out on such advantages. Further, if you have earned reward points on a credit card, those points are likely to going to expire after a certain time.

So it is important to at least take advantage of the reward points, even if you don’t want to use your credit card.

5. Credit Utilisation Ratio

An inactive card with a high credit limit can keep your credit utilisation ratio low. This is good for your credit score. However, if an inactive card is closed by the bank, it can raise your credit utilisation ratio and lower your credit score.

To conclude, there are multiple aspects to keeping a credit card inactive. On the one hand, it can help your credit score by improving your utilisation ratio and lengthening your credit history. However, it can also be declared dormant and closed by the issuer. It is important to review the status of your credit cards and your priorities to decide how you should manage them.