Can credit cards be automatically closed due to inactivity?

The Sleeping Giant: Can Your Credit Card Be Closed for Inactivity?

Your credit card sits in your wallet, untouched for months. You’re busy, life happens, and it slips your mind. But could that seemingly harmless inactivity lead to the unexpected closure of your account? The short answer is yes. While it’s not a common practice for all credit card companies to automatically close accounts for inactivity, it’s certainly a possibility, and understanding why is key to keeping your credit in good shape.

Credit card issuers are businesses, and like any business, they aim to maximize profitability. An inactive credit card represents a significant cost with little to no return. The card company incurs expenses associated with maintaining the account, including administrative costs and fraud prevention measures. However, without transactions, they receive no interchange fees (fees paid by merchants for processing transactions) and accrue no interest payments from you. This lack of revenue stream makes inactive accounts less attractive from a financial perspective.

While a year is often cited as the potential timeframe for automatic closure, the exact period varies significantly between issuers and even individual card products. Some companies may wait longer, perhaps two years or more, while others might act sooner. The policy is rarely explicitly stated upfront, often buried deep within the terms and conditions.

What constitutes “inactivity”? This isn’t simply about not making a purchase. It usually encompasses a combination of factors:

• No purchases: The most obvious indicator of inactivity.
• No cash advances: Even if you’re not making purchases, cash advances also contribute to account activity.
• No payments (beyond minimum): While making minimum payments keeps the account open, a consistent pattern of only paying the minimum might be interpreted as a sign of low engagement. Regular higher payments showcase active account management.
• No communication with the issuer: Contacting customer service, even for simple inquiries, can signal ongoing account use.

The consequences of an inactive account closure can be detrimental:

• Impact on credit score: While closing an account doesn’t necessarily plummet your credit score, it can negatively affect several factors, including credit utilization and credit history length. A longer credit history is generally viewed more favorably.
• Loss of rewards: If you’ve accumulated rewards points or cashback, these may be lost upon account closure.
• Difficulty obtaining new credit: Having accounts closed for inactivity can raise red flags for potential lenders, making it harder to secure future loans or credit cards.

How to avoid automatic closure:

• Use your card regularly: Even small, periodic transactions, like paying a subscription service or buying your morning coffee, can keep your account active.
• Set up automatic payments: Automating even a small recurring bill will keep the account engaged.
• Review your statement regularly: This ensures you’re aware of any fees or changes in terms and conditions.
• Contact your issuer: If you plan on being inactive for an extended period, contact your card issuer to understand their inactivity policy.

While the automatic closure of credit cards due to inactivity is a real possibility, proactive account management can help prevent this from happening. By understanding the factors that contribute to account closure and taking steps to maintain regular activity, you can protect your credit score and ensure continued access to your valuable credit card benefits.