Summary of this article
Your credit cards will remain inactive when you decide not to use them but you should understand the potential consequences. The best way to keep your credit score high and maintain financial freedom is through responsible credit card usage for everyday expenses.
Many of us own multiple credit cards but use only a few, leaving the rest untouched. Often, people stop using new cards soon after activating them. While this may seem harmless, it can cost you valuable rewards and slow your progress toward building a strong credit score.
Your financial profile will be impacted because you choose to keep your credit cards inactive without using them. Although people try to prevent debt accumulation through this method, it produces multiple consequences that need careful examination.
Let us understand what happens when you keep your credit cards inactive or close an old card.
Impact On Credit Score
Your credit card issuer will send you several warnings before closing your account to notify you about inactivity and ask if you want to keep your card active. Your credit score might suffer when you close an old inactive credit card that you have had for a long time with your bank.
Your extended banking relationships with banks demonstrate your regular payment and withdrawal activities together with your ongoing financial dealings. Your credit record will lose its positive financial history when you decide to close some of your cards.
Dormancy Fees
Your credit card issuer will charge you dormancy fees or inactivity charges when you stop using your credit card for a long time. The fees exist to motivate card users to keep their cards in use. The evaluation process occurs either once every year or after a particular duration of non-activity. To avoid these charges, it's essential to understand your card issuer's terms and conditions.
Reduced CUR
Your Credit Limit Utilisation (CUR) is the proportion of your available credit limit that you use. Your CUR stays low when you avoid spending money on your credit cards. Your credit score benefits from a low CUR because it shows you handle your credit responsibly. The zero utilisation of a credit card, however, does not show lenders that you handle credit properly. The creditors will see this as a sign of poor credit management, which could threaten your ability to get approved for future credit products, including loans.
Closure Of Credit Card Account
Your credit card account will be closed by the issuer when you stop using it for a long time. The decrease in your credit card limit will not immediately affect your credit score, but it will decrease the amount of credit you can use.
Loss Of Rewards And Benefits
Credit cards provide users with rewards programs and cashback deals, and they include benefits that grant access to airport lounges and other services. You miss out on these rewards and perks.
Additionally, if you have a credit card with an annual fee, it's worth considering whether the card's benefits justify the fee if you're not actively using them.
No Financial Flexibility
Cardholders can use credit cards as their backup funds when they need to buy something, but don't have enough money right away. When you don't use your credit cards, you have less financial flexibility in terms of making large or unexpected payments. The delay in receiving funds will create problems for you in handling emergency situations and short-term financial needs.
Difficulty In Unplanned Financial Emergencies
Inactive credit cards create problems when you need to handle unplanned financial emergencies. Your dormant card requires activation through a specific procedure, which might need additional time to finish. You should keep at least one credit card active for emergencies that occur without warning.
Missed Credit History
Your credit history functions as a necessary financial record which supports your ability to obtain various financial products, including loans and mortgages. Your inactive credit card does not generate any positive effects for your credit history. Your credit history will become strong through regular, responsible credit card usage because it will work to your advantage.
Your credit cards will remain inactive when you decide not to use them but you should understand the potential consequences. The best way to keep your credit score high and maintain financial freedom is through responsible credit card usage for everyday expenses. People develop credit history through regular card use which keeps their financial tools active for different purposes.
