Inactive Credit Card: Use it or Lose it?

Highlights:

• Lenders may close paid credit card accounts that are inactive after a certain period of time.
• Lenders may not notify you before this happens.
• The cancellation may cause your credit scores to go down.

You may not have given much thought to the credit card in the back of your wallet or in a drawer. The credit card you paid off and haven't used in a while. But the lender hasn't forgotten. After a certain period of time, they may consider your account “inactive” and may close it. If you weren't using the credit card, will the cancellation impact you at all? That depends on several factors. Here are some things you should know about account inactivity.

How long can my account be inactive before it's closed?

It depends on the company. Lenders may consider accounts inactive if there are no new purchases for a period of time. You may want to consider speaking with the credit card company with whom you have an account. Be sure to talk about their policies on account inactivity.

Will my lender notify me before they close my account?

Not always. Credit card companies aren't required to give you any notice that they're closing your account. However, card issuers are required to notify you of important changes to the terms and conditions of your account. But that doesn't include card cancellations due to inactivity.

How does this affect my credit history?

A credit card cancelled for inactivity may impact you in the following ways.

• Debt to credit utilization ratio. This is the amount of credit you're using as compared to the amount of credit available to you. Lenders want to see a lower ratio, meaning you could borrow more money than you have borrowed so far.
• Credit Mix. Lenders like to see that you are able to handle different types of credit. This includes installment loans and credit cards, to name a couple. If you have only one credit card and it closes, it may impact the variety of your credit types. This could impact your credit scores.

Plus, if a lender closes a credit card due to inactivity, you may lose card benefits or rewards. If you have a credit card, be sure to understand the company's policy about rewards and benefits.

Please note that a closed account isn't immediately removed from your credit reports. Even if you paid the account as agreed, it can remain on your reports for up to 10 years.

What can I do?

If your lender closed your card but you want to keep it, contact the credit card company. Some lenders will reinstate the account, although you may be subject to a credit check. If you decide not to reinstate the card, check your credit report to make sure the card account shows as closed.

To keep a credit card active, consider using it every few months, if only for small purchases. You might also consider putting a small recurring charge on the card to keep it active. You can also make it your primary card for frequent charges, like gasoline.

Equifax^® can help track credit changes after a lender closes an account

If one of your credit accounts was recently closed, it's important to check your credit report. You want to ensure that Equifax, Experian^®, and TransUnion^® have updated their records. Equifax Complete™ Premier can help you track your credit and view your credit reports from Equifax, Experian and TransUnion. If you have an opened credit card account, it's important to use it before you lose it.