Summary of this article
Long-term inactivity may weaken credit profile over time
Card closure can raise credit utilisation ratio significantly
Limited activity reduces visible credit behaviour for lenders
Keeping a credit card inactive over a long period of time can impact a user’s credit profile due to issues of reduced available credit, reduced time of availing of credit, and lack of recent repayment actions. While not using credit may seem to be the safer option, credit scoring systems look at credit behaviour differently – how credit is used over a period of time.
Credit scores are built on repayment history, the amount of credit used, the duration of one's credit history, and the quantity of credit borrowed. If a credit card has not been used for several years, it will likely be considered inactive and may not show an active credit activity in the borrower’s profile.
Impact On Credit History Length
One of the major components of credit scoring is the length of credit history. Older accounts help build a longer history of borrowing, ultimately helping create stronger credit profiles, as there is a longer stretch of repayment behaviour which can be analysed. An unused card that has been closed, particularly after holding it for many years, may cause the average credit history to decrease.
This may not be immediately reflected on credit scores, but over time, it can impact one’s credit profile, particularly if there is a poor credit history.
Reduced Credit Activity Visibility
In credit systems, the financial discipline is based on the repayment history that is seen over a number of years. If your credit card is left unused for a long time, you will not have as many recent transactions for credit information companies (CICs) to review, which may result in a weaker credit profile post evaluation.
However, if full dues are paid in a timely order, periodic small transactions like subscription payments or utility bills can help keep your card active.
FAQs
Does an inactive credit card, which has not been used for years, have an impact on credit score?
Yes, if a credit card hasn’t been used over years, it can have a negative impact on the user’s credit score, both directly and indirectly.How long does it take for a credit card to expire if not used?
Many banks follow a policy of closing inactive credit cards after 6-12 months; but banks must notify the user, and may close it if there is no response within 30 days.Is occasional usage of a credit card enough to keep it active?
Yes, small transactions over time, and timely payment of dues are sufficient to keep the card active.
