A lender may close your credit card account on your behalf if it is inactive for a long time. Learn more about inactive credit cards with help from Equifax. [Duration – 1:36].
The credit card that was paid off and hasn’t been used in a while may be hiding in a drawer or the back of your wallet, but you may not have given it much thought.
However, based on the policies of the lender or creditor, your account may be closed and deemed “inactive” after a specific amount of time.
Remember that when it comes to credit, it’s important to show that you can handle financial commitments responsibly. Being able to use credit cards responsibly by making consistent, timely payments each and every time is a necessary component of that.
Will the credit card cancellation affect you in any way if you weren’t using it? That depends on a number of factors, but the following are some things you should be aware of regarding inactive accounts.
You’ve probably heard the warnings about overspending on credit cards, but did you know that using them too little can be risky too? It’s true – credit card companies can close inactive accounts, which can negatively impact your credit score
However, the duration of time it takes for a credit card to close because of inactivity isn’t always clear-cut. Major credit card companies such as Capital One, Chase, and Discover declined to comment when we contacted them to inquire about their policies regarding the closure of inactive accounts.
However, Wells Fargo confirmed that they do close inactive accounts, but not immediately. “Like other credit card issuers, we regularly close accounts that have been unused or inactive for an extended period of time, generally after two to three years depending on the card product and other factors,” spokesperson Sarah DuBois explains.
Before closing an account, Wells Fargo contacts customers and provides instructions on how to avoid closure. But not all issuers do this, so don’t expect a heads-up if your card is about to be shut down.
Credit Card Issuers Can Close Inactive Accounts at Their Discretion
The Consumer Financial Protection Bureau (CFPB) states that most credit card companies reserve the right to close accounts at any time. By the time you receive a closure notice, it’s often too late to stop it.
Opening credit cards and not using them might seem counterintuitive, especially if you’re a frequent card user. But many people do this to increase their total credit limit and lower their utilization ratio, both of which are beneficial for credit scores.
Others open cards for specific benefits like introductory cash rewards, with no intention of using them regularly It’s also common for cardholders to stop using certain cards when they get approved for better ones
Regardless of your reasons for not using a card, you probably don’t want it closed. When accounts are closed, your total credit limit shrinks. If your limit shrinks while your spending remains the same, your utilization ratio increases.
Utilization ratios are a major factor in your credit score. So, closing a credit card account could significantly hurt your score, especially if you’re new to building credit.
How Often Should You Use Your Cards to Avoid Closure?
Financial expert Marc Lescarret recommends using your cards at least twice a year to avoid closure. However, he believes that credit card issuers will become more aggressive about closing inactive accounts if the economy worsens.
The primary worry of the issuers is that someone will run into financial difficulties and begin to accumulate debt on an old, unused credit card. The issuer will have to attempt to collect the remaining amount if the customer is unable to repay the debt.
To reduce this risk, issuers close inactive accounts. Lescarret anticipates that if more businesses implement layoffs or if cardholder default rates increase, accounts will be closed after shorter periods of inactivity.
Playing It Safe: How to Keep Your Credit Cards Active
While Lescarret’s recommendations are cautious, it’s possible to neglect a card for several years without it being closed. However, it all depends on your issuer’s approach to inactive accounts.
You can set up autopay for your bills and place a small recurring monthly payment on the card, such as a Netflix subscription, to avoid worrying about closure. This will keep it active.
Financial advisor Autumn Schinka highlights the variation in how issuers handle inactive accounts. “Some issuers will notify you about a closure after just a few months of inactivity, while others will allow it to stay open with no charges even for years before closing it,” she says.
Schinka advises checking your credit card agreement’s fine print to see the terms regarding inactive account closure. Otherwise, she concurs with Lescarret that using your cards for frequent purchases is the safest course of action. Of course, ensure you pay the full balance each month.
Leo Chubinishvili, a financial planner, suggests that certain card types, like store cards, may allow several years of inactivity. This is because most cardholders don’t use store cards as often as general-purpose cards.
For most other cards, Chubinishvili recommends using them at least once per quarter to avoid closure. However, if you’re keen on building credit, he suggests using your card at least once per month. One of the big factors that determine your credit score is payment history, which involves the frequency of on-time payments. Using your card monthly and paying it off in full is the best way to improve your marks in that credit score category.
Remember:
- Credit card companies can close inactive accounts at any time.
- The time it takes for a card to close due to inactivity varies by issuer.
- Using your cards at least twice a year is a good way to avoid closure.
- You can set up a small recurring payment on your card and use autopay to keep it active.
- Read the fine print of your credit card agreement to see the issuer’s policies on closing inactive accounts.
By following these tips, you can keep your credit cards active and avoid any negative impact on your credit score.
Will I be notified before my account is closed?
Not necessarily. Credit card companies aren’t required to give you any notice that they’re closing your account. The Credit Card Act of 2009 mandates that creditors and lenders give consumers 45 days’ notice of significant changes to their accounts; however, this requirement does not apply to notifications of card cancellation due to inactivity.
What can I do?
You can get in touch with the credit card company regarding the cancellation if your card has been canceled but you still want to keep it. Some lenders will reinstate the account, although you may be subject to a credit check. Make sure the card account appears as closed on your credit report if you choose not to request that the card be reinstated. Every 12 months, you can get a free copy of your credit report from each of the three national credit bureaus by going to www. annualcreditreport. com. You can also create a myEquifax account to get six free Equifax credit reports each year. Additionally, you can sign up for Equifax Core CreditTM to receive a free monthly Equifax credit report and a free monthly VantageScore® 3 by clicking “Get my free credit score” on your myEquifax dashboard. 0 credit score, based on Equifax data. A VantageScore is one of many types of credit scores.
Should I Close a Paid Credit Card Or Leave It Open?
FAQ
Can credit cards close on their own?
How long until a credit card closes itself?
What happens if a credit card company closes your account?
Does it hurt your credit if a card is closed due to inactivity?
Why does my credit card issuer close my account?
There are four main reasons why your credit card issuer might close your account: If you don’t use your card for a certain period, your issuer might cancel your account. The length of this period varies by issuer. Credit bureau Experian says that there is no definitive number of months of inactivity that will trigger a closure.
Why do credit cards get closed?
Credit card inactivity can sometimes lead to your account being closed. Find out here when and why credit cards are closed for this reason.Image source: Getty Images. If you have a credit card and you haven’t used it for a while, this could become a problem. The issue: Credit cards get closed due to inactivity.
What happens if you don’t use a credit card for a year?
If you don’t use a credit card for a year or more, the issuer may decide to close the account. In fact, inactivity is one of the most common reasons for account cancellations. When your account is idle, the card issuer makes no money from transaction fees paid by merchants or from interest if you carry a balance.
How does closing a credit card affect your credit score?
When an account is closed, the amount of available credit decreases, which impacts your credit-utilization ratio — the amount you owe as a percentage of your total available credit. This ratio accounts for 30% of your credit score. Keeping your balances around 30% or less of your available credit is best.