Does it hurt your credit to not use it?

The Credit Card Paradox: Can Not Using Your Credit Hurt Your Credit Score?

We’re often told that responsible credit card use is essential for building a good credit score. But what happens when you diligently pay off your balances and then… just don’t use your cards? Does tucking them away in a drawer actually harm your credit rating?

The answer, as with most things financial, is nuanced. Infrequent credit card use in itself won’t directly nuke your score. You won’t see points plummeting simply because you haven’t swiped your card in a month or two. After all, a large part of your credit score is based on your payment history – and if you have no balance to pay, you’re automatically on time!

However, prolonged inactivity can lead to a more subtle, but potentially damaging, consequence: the issuer closing your account due to inactivity. This is where the real risk lies.

Why Account Closure Matters

Imagine you have two credit cards, each with a $5,000 credit limit. This gives you a total available credit of $10,000. If you consistently carry a balance of $2,000 across those cards, your credit utilization ratio (CUR) is 20% ($2,000/$10,000). Keeping your CUR below 30% is generally considered a good practice for maintaining a healthy credit score.

Now, let’s say one of those cards gets closed due to inactivity. Suddenly, your available credit drops to $5,000. With the same $2,000 balance, your CUR jumps to 40% ($2,000/$5,000). This spike can negatively impact your credit score, signaling to lenders that you’re relying more heavily on your available credit and might be at higher risk of default.

The Credit Utilization Connection

Credit utilization is a significant factor in credit score calculations. A lower CUR demonstrates responsible credit management, indicating you’re not maxing out your cards and are less likely to struggle with repayments. Closing a dormant account reduces your overall credit limit, thus inflating your CUR even without any change in your spending habits.

Avoiding the Inactivity Trap: The $5 Solution

The good news is preventing account closure due to inactivity is remarkably simple. All it takes is a small, occasional purchase.

Consider this strategy: designate one of your cards for a recurring, small expense, like a subscription service or even a monthly coffee. Set up automatic payments to ensure you never miss a due date. This small, consistent activity keeps the card active in the eyes of the issuer, preventing them from closing the account.

Think of it as a $5 monthly “insurance policy” against potential credit score damage.

The Pitfall of Opening Too Many Cards

While avoiding inactivity on your existing cards is important, don’t fall into the trap of opening numerous credit lines solely to increase your available credit. Opening and managing multiple credit cards responsibly can be beneficial, but opening too many in a short period can actually lower your score. It can signal to lenders that you are desperately seeking credit and may be financially unstable. Each hard inquiry on your credit report can also ding your score, albeit usually only slightly.

In Conclusion: Moderation is Key

The key takeaway is that responsible credit card management is about balance. Use your cards strategically, even if it’s just for small, recurring expenses, to keep them active. Avoid opening unnecessary credit lines simply to inflate your available credit. By following these guidelines, you can harness the power of credit to build a strong financial future, without letting dormant accounts negatively impact your progress.