What happens if you don't use your credit card? Your credit score could suffer.
As tempting as it may be to stop using a credit card, doing so can lead to card cancellation and a damaged credit score.
Managing a credit card is a little like marrying into a family of acrobats. You won't have to take part in a highwire act, but you will be required to practice balance.
Charge your card to the max, and your credit score will suffer. Hide your card away in a drawer for too long, and your credit card company may cancel it. Like most balancing acts, it's about finding a safe spot in the middle.
The risks of not using your credit card
You may have been told that the best way to get out of debt is to hide your credit card away so you can't access it when you're tempted to make spur-of-the-moment purchases. You may have even heard that you should cut your card into small pieces, ensuring that you never use it again. If you regularly charge more than you can afford, both ideas may sound inviting, particularly if your credit card does not charge an annual fee.
Credit card debt is awful and it is smart to avoid it. However, if you don't use your card at all, you risk it being canceled due to inactivity. You may also put yourself at an increased risk of credit card fraud and accidental missed payments.
Your card could be canceled
There is no hard-and-fast rule as to how long a credit card company will allow you to keep your card on ice. Not only do they determine when the time is right, but they are not required by law to give you notice. What you have to remember is that credit card companies need to make money. If you don't use their card, they won't earn any interest. Non-use also means credit card companies can't charge merchant processing fees when you use your card.
If and when your card is canceled, there are two ways it can hurt your credit score.
- It will reduce the average length of your credit history. This accounts for 15% of your total credit score, and the smartest way to plump it up is to hold on to open accounts.
- Your credit utilization ratio could increase. This is the second most important factor in calculating your credit score and measures the amount you owe in relation to your available credit. To illustrate, imagine that you have three credit cards, each with a spending limit of $5,000, giving you $15,000 in total available credit. If you owe $2,500 on two of the cards, that means you are using $5,000 of the available $15,000, or 33%. Let's assume that you owe nothing on the third credit card, which gets canceled because you're not using it. That leaves you with only $10,000 in available credit and so your total credit utilization jumps to 50%. The objective is to keep your utilization as low as possible, and a canceled card works against that.
You could overlook card activity
Ask yourself how likely you are to check the monthly statement associated with a card you're not using. If the answer is "not very," you may miss fraudulent charges. There were 650,572 reported cases of identity theft in the U.S. in 2019, and 41.8% of those involved credit card fraud.
If you've never been a victim of fraud, you may not realize that the bad guys sometimes take your credit card number for a "test run" by purchasing something small. If that crime is not reported, they know that it's safe to make larger purchases.
It's also easy to miss other charges that appear and accidentally miss a payment. These include annual credit card fees and irregular payments for things like satellite radio, subscription services, and gym memberships. Missed payments cost you late fees and harm your credit score.
Make it work for you
The fact of the matter is, you have to use a credit card on occasion to keep it alive. How often you should pull it out is a matter of opinion. To be on the safe side, try to charge at least one item per month and pay it off. Even if it's just a gallon of milk, the activity will show up as an on-time payment and the credit card company will view the card as active.
The ideal way to use any credit card is to purchase what you need, gain valuable rewards, and never carry a balance into the next month. No matter what your current situation is, you don't need to stop using your credit card. Instead, you need to make it work for you — and not the other way around.
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