How Inactive Cards Can Quietly Damage Your Credit Score?

Credit score is an important factor that plays role in determining whether or not you are issued loans and cards in the future. A higher credit score means that your creditworthiness is high. 700 is considered a good score.

Credit cards are also being increasingly used these days, with some people preferring to keep multiple number of credit cards at the same time.

However, it is important to know that credit score is highly dependent on your credit card activity. And leaving credit cards inactive can be damaging for your credit score in the long run.

Inactive Credit Cards

When the credit cards are left inactive, they can impact the credit score negatively. That's especially when the card is closed by the issuer. It leads to a decrease in your available credit and increases the credit utilization ratio (credit amount you are using compared to the assigned credit limit).

This is because closed inactive cards can shorten the cardholder's credit history, which needs to be longer for a good credit report and score.

It even impacts your credit mix, which also plays an important role in deciding your credit score.

Credit Utilization Ratio (CUR)

A higher credit score is in line with a low CUR, which should be ideally below 30%. A low CUR is good for the score. Not using the card may keep the CUR low, but once the inactive account is closed by the bank, the available credit will decrease, leading to a higher CUR despite the same spending habits.

Account Closure

The credit card companies usually close the accounts that remain inactive for long periods. There are various disadvantages this brings.

• Credit Age: It is the average of the ages of all your credit accounts. When this reduces, as the account is closed by the issuer, it also lowers your score.
• Credit Mix: The closing of an inactive card when having a limited number of cards can also impact your credit mix in a negative manner, thereby also lowering your credit score. Credit mix refers to the different types of credit accounts one has and maintains.

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Your Payment History

Not using a credit card may make you feel no difference at all. However, it quietly does have an impact.

It impacts your payment history, which is required to monitor you're the cardholder's credit card statements for any annual fees and other charges. The payment history gets affected when you do not pay these charges, whether or not you use the card.

This further lowers the credit score, which can prevent you from enjoying several benefits experienced with a good, impressive credit score.

Rewards and Benefits

Losing rewards and benefits offered on credit cards may not form a part of a lowering credit score, however, it does prevent you from enjoying several financial luxuries.

What One Needs to Do?

When you own a credit card, you need to make sure that you take care of all aspects pertaining to the card to prevent your credit score for reducing.

You need to ensure that you keep using the card, whether it be for small and regular payments. Periodic usage of the card prevents it from getting closed. The account does not remain dormant and the card remains active.

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Do You Still Feel Not Using Your Credit Card is Harmless?

It may seem so, but things are not alike.

We tend to consider it meaningless to bother about the card and the related obligations when we do not make use of it. However, that's not what actually happens.

This makes it necessary to keep the credit card active, even if you need to make regular small purchases for that.

How Long Can One Let the Account Remain Inactive?

Depending upon the issuer, the time for which a credit card account can remain inactive before being closed varies from banks to banks and lenders to lenders.

However, a card is deemed inactive when there are no purchases made in the recent past.

In fact, it is not necessary that you receive the prior information about your card getting closed soon.

Final Thoughts

Lenders of credit cards need people with a high credit score and good creditworthiness, which come from your financial behavior. Having credit cards and not using them, which may even lead to cancelation, only gives a negative impact, affecting the credit score in an unwanted manner.

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