What happens if you get a credit card and never use it?

The Sleeping Giant: What Happens When You Leave Your Credit Card Dormant

Credit cards offer a potent tool for managing finances, but what happens when that tool gathers dust in a drawer? Many people obtain a credit card for emergencies or future use, only to let it sit unused. While the initial intention might be sound, neglecting your credit card can have unexpected consequences, potentially harming your credit score and leaving you unprepared when you actually need it.

The biggest risk associated with an inactive credit card is closure. Credit card issuers, understandably, want to manage their resources efficiently. Account inactivity, often defined as a year or more without any transactions – even a single purchase or payment – frequently leads to closure. This is true regardless of your credit history or the card’s credit limit. The bank sees no benefit in maintaining an account that generates zero revenue and incurs administrative costs.

This closure can negatively impact your credit score in several ways. Firstly, it reduces the length of your credit history. Credit history length is a significant factor in your credit score calculation. A longer history, demonstrating responsible credit management over time, generally results in a higher score. Closing an old account, even an inactive one, shortens that history, potentially lowering your score.

Secondly, while it might seem counterintuitive, an inactive card can negatively affect your credit utilization ratio. This ratio represents the percentage of your available credit that you’re using. A low credit utilization ratio (ideally below 30%) is beneficial for a good credit score. However, when a card is closed, your available credit decreases, potentially increasing your credit utilization ratio on your remaining cards, even if your spending habits haven’t changed. This sudden jump can temporarily lower your credit score.

Finally, losing access to a credit card can leave you unprepared for unexpected expenses. Having a readily available credit line provides a financial safety net for emergencies, unexpected repairs, or travel hiccups. When you need it most, a closed account will leave you scrambling for alternative solutions, possibly at higher interest rates or with less favorable terms.

So, what can you do to avoid these pitfalls? The simplest solution is to use your credit card at least once a year, even for a small, recurring purchase like a subscription service or a single online transaction. This minimal activity keeps the account active and prevents premature closure. Another strategy is to set up automatic payments for a small amount on a low-interest account, ensuring the card remains active without impacting your budget significantly. Alternatively, you could consider closing the account yourself if you’re certain you won’t need it, but do so only after carefully considering the potential impact on your credit profile.

Ultimately, the decision of whether to keep or close an unused credit card is a personal one. However, understanding the potential risks associated with inactivity allows for informed choices, safeguarding your credit health and financial preparedness. Ignoring your dormant credit card might seem inconsequential, but it could end up costing you more than you anticipate.