What happens if I take out a credit card and don’t use it?

What happens if I take out a credit card and don’t use it?

What Happens If I Take Out a Credit Card and Don’t Use It?

If you’ve recently received a credit card but find yourself wondering what happens if you don’t actually use it, you’re not alone. Many Americans open credit cards for various reasons—whether it’s to build credit, gain rewards, or have a backup payment option—but some might hesitate to spend on them right away. Understanding the implications of having an unused credit card can help you make informed decisions about managing your finances and credit health.

In this article, we’ll explore what happens when you take out a credit card and don’t use it, including its impact on your credit score, fees, credit utilization, and overall financial outlook. We’ll also provide insights into how to manage unused cards responsibly, so you can maximize benefits without falling into common pitfalls.

Does Having an Unused Credit Card Affect Your Credit Score?

Many people worry that having a credit card they don’t use might hurt their credit score, but the truth is a bit nuanced. Your credit score, calculated through models like FICO or VantageScore, is influenced by various factors, including payment history, amounts owed, length of credit history, types of credit, and new credit inquiries.

Positive Effects of an Unused Credit Card on Your Credit

• Credit Utilization Ratio Improvement: Credit utilization is the percentage of your available credit you’re currently using. Keeping a credit card open and unused increases your total available credit, which can lower your utilization ratio—a major factor in boosting your credit score.
• Longer Average Account Age: If you keep an older card active, even without use, it contributes positively to the length of your credit history, which can help your score.
• Diversity of Credit Types: Having different types of credit (credit cards, loans, etc.) shows lenders you can manage various types responsibly.

Potential Negative Effects or Risks

• Credit Report Inactivity: Some credit card issuers may close accounts due to inactivity, which could negatively impact your credit score by reducing your total available credit and shortening your credit history.
• Annual Fees: If your unused card charges an annual fee, you’ll incur costs without gaining benefits, which can be a financial disadvantage.

Overall, not using your credit card doesn’t automatically damage your credit score, especially if it remains open and in good standing.

Will I Get Charged Fees if I Don’t Use My Credit Card?

One worry people often have is whether an unused credit card will cost them money. The answer varies depending on the type of card and issuer policies.

• Annual Fees: Some credit cards come with annual fees regardless of use. If your card has such a fee, you’ll be charged even if you don’t make purchases.
• Inactivity Fees: Although less common, some issuers may charge inactivity fees, so it’s important to read the terms carefully.
• No-Use Does Not Trigger Interest: Interest charges only apply when you carry a balance. Simply not using the card means you won’t owe interest.

To avoid unexpected charges, always review your cardholder agreement and consider contacting your issuer if you plan not to use the card for a long time.

Can My Credit Card Be Canceled if I Don’t Use It?

Yes, credit card companies can close your account due to inactivity. Issuers typically want active users who generate revenue through fees and interest, so long periods without use might lead to cancellation.

How Much Time Does It Take for Account Closure?

This varies by issuer, but many banks might close dormant accounts after 12 to 24 months of inactivity.

Possible Consequences of Account Closure

• Decrease in Available Credit: Closing the card lowers your total available credit, potentially raising your credit utilization ratio and negatively impacting your credit score.
• Shorter Credit History: Losing an older account shortens your credit history length, which could reduce your score.
• Limited Future Credit Options: If closed for inactivity, it might be harder to get the same card again or face different terms.

To prevent involuntary closure, consider making a small purchase on the card occasionally and paying it off promptly.

What Are the Benefits of Keeping a Credit Card Open but Unused?

While it might seem counterintuitive, keeping a credit card open and unused can offer a variety of perks if managed correctly.

• Improve Credit Utilization Ratio: As mentioned earlier, keeping your credit limit available but unused helps lower your credit usage ratio, which benefits your credit score.
• Build Credit History Length: The longer you keep accounts open, the more positive impact it has on your credit history length.
• Emergency Backup: An unused credit card can serve as backup funds during emergencies when you don’t have access to cash.
• Access to Perks and Rewards: Some cards offer ongoing benefits such as purchase protection, extended warranties, or no foreign transaction fees even if rarely used.

To maximize these benefits, ensure there are no unnecessary fees eating into your wallet.

How Does an Unused Credit Card Affect Your Credit Utilization Ratio?

Credit utilization ratio is one of the most important factors in your credit score, comprising roughly 30% of it. This ratio compares the amount of credit you’re using to the total credit available to you. For example, if you have $5,000 in credit limits and carry $1,000 in balances, your utilization rate is 20%.

By having an unused credit card with a decent credit limit, you increase your total credit limit, which can reduce your utilization ratio if you keep balances low on other cards. A lower utilization ratio signals lenders that you’re not relying heavily on credit and are managing debt responsibly.

Is It Better to Cancel an Unused Credit Card or Keep It?

The decision to cancel or keep an unused credit card depends on your individual financial goals and the card’s terms.

Reasons to Keep the Card Open

• No Annual Fee: If the card doesn’t cost you anything, keeping it open can benefit your credit score by maintaining credit limits and length of credit history.
• Good Credit History: Older accounts typically help your overall credit profile.
• Potential Perks and Rewards: Some cards offer benefits worth keeping even if usage is infrequent.

Reasons to Cancel the Card

• High Annual Fees: If the card’s fees outweigh benefits and you don’t plan to use it.
• Temptation to Overspend: If having an extra card might lead to unnecessary spending.
• Too Many Open Accounts: Managing many credit cards can be overwhelming and impact credit quality over time.

Before canceling, consider the potential temporary dip in your credit score and plan accordingly.

Will Having an Unused Credit Card Affect My Credit Approval for Other Loans?

Having an unused credit card usually does not hurt your chances of getting approved for other types of loans. In fact, if the card helps keep your credit utilization low and demonstrates responsible credit management, it can improve your creditworthiness.

However, too many unused cards or recently opened cards (which increase hard inquiries) might raise concerns with lenders who think you’re overextending your credit profile.

How Can I Keep an Unused Credit Card Active Without Spending Much?

If you want to keep your credit card account open but don’t want to overspend, there are simple strategies to ensure the card remains active and in good standing:

• Make Small Purchases Periodically: Use the card for routine expenses like a subscription service or small grocery buys.
• Set Up Recurring Payments: Use the card for automatic bill payments that occur monthly.
• Pay Off the Balance in Full Each Month: Avoid interest charges by paying off the balance before the due date.
• Monitor Account Activity: Regularly check your account online or via statements to catch any fraudulent or accidental charges.

Does an Unused Credit Card Impact My Credit Score Immediately?

Generally, an unused credit card does not have an immediate impact on your credit score. The effect comes over time as your overall credit management patterns form. For instance, if inactivity leads to account closure, that could change your credit profile significantly. Otherwise, simply having an open but unused credit card can be neutral or even positive for your score.

What Happens to My Unused Credit Card After Long-Term Inactivity?

If you don’t use your credit card for a very long time—often 1 to 2 years—issuers may close it due to inactivity. Additionally:

• You Might Lose Rewards: Some rewards programs expire if you don’t make qualifying purchases.
• Issuer May Reduce Credit Limit: To reduce risk, some companies lower your credit line if they see no activity.
• Your Card Could be Canceled Automatically: Leading to a possible drop in credit score.

To prevent this, use your card at least once every few months.

Summary: Key Points to Remember About Unused Credit Cards

• Unused credit cards can help your credit score by improving your credit utilization ratio and lengthening your credit history.
• Annual or inactivity fees can cost you money, so check your card’s terms carefully.
• Issuers may cancel accounts after long periods of inactivity, which can harm your credit score.
• Occasional small purchases and prompt payments can keep your account active without risking overspending.
• Keeping an unused card open is usually beneficial unless it has costly fees or you find it difficult to manage responsibly.

Related Articles

• What habit lowers your credit score?
• What happens if I use 100% of my credit card?

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