What happens if you get a credit card but don't use it?

Inactive Credit Cards: Beware the Closure Risk

Acquiring a credit card with the intention of using it sparingly or not at all may seem like a harmless financial move. However, cardholders need to be aware of the potential consequences associated with inactive credit cards, including closure risk and its impact on credit history.

Closure Risk

Credit card issuers typically have inactivity policies in place, which outline the conditions under which they may close an account that has not been used for a specific period of time. This period commonly ranges from one to three years. If a cardholder does not make any purchases, cash advances, or balance transfers for an extended period, the issuer may deem the account inactive and initiate the closure process.

Impact on Credit Utilization

Closing an inactive credit card can negatively affect your credit utilization ratio, which is a key factor in determining your credit score. Credit utilization refers to the percentage of your total available credit that you are currently using. A higher utilization ratio can indicate to lenders that you are overextended financially and pose a higher risk of default.

Impact on Credit History

When a credit card issuer closes an account, it becomes part of your credit history. Closed accounts remain on your credit report for 10 years, even if they are closed in good standing. Too many closed accounts on your report can raise red flags for potential lenders, who may view it as a sign of poor credit management.

Minimizing the Risks

To avoid the potential risks associated with inactive credit cards, it’s important to take the following steps:

• Use your card regularly: Make small purchases or set up automatic payments to keep your card active.
• Notify your issuer: If you plan to put your card on hold temporarily, notify the issuer so they can note it in your account.
• Consider a different card: If you don’t plan to use a credit card, consider opting for a card with no inactivity fees or a lower inactivity threshold.

Conclusion

While it may seem convenient to acquire a credit card with no immediate use, cardholders need to be mindful of the potential consequences of account inactivity. Closing an inactive credit card can harm your credit utilization ratio and credit history. By taking active steps to keep your cards active or choosing cards with more flexible policies, you can mitigate these risks and maintain a healthy credit profile.