What Happens When You Stop Using a Credit Card?

When was the last time you looked through your wallet? Is there a card in there you haven't used in a while? If so, you're likely wondering what to do with it. You basically have three options: Use it, keep it without using it or close the account.

 

Don't make your choice just yet—before you decide which route to take, let's look at what happens when you stop using a credit card and what the risks are of closing the account.

 

Why would you stop using a credit card?

There are many valid reasons to stop using a credit card.

 

Maybe you just forgot about it. It's bound to happen to those older credit cards. No shame if this is the case, but we recommend you log into your account regularly to make sure it hasn't been used by someone else.

 

Or maybe you're trying to pay off debt or resist the temptation to use a credit card. This is a useful strategy if you want to save money. Be proud of yourself for taking smart steps toward financial independence!

 

Even if you're not in debt, keeping a low balance is a good move—it will almost always have a positive impact on your credit score. This is the metric lenders use to determine how reliable you are as a loan borrower and the rate you’ll pay for home loans, vehicle loans and personal loans.

 

A $0 balance also increases your credit utilization ratio, which is a big factor in your credit score.

 

What are the risks of not using a credit card?

You may be thinking, “Well, what's the harm in not using a credit card? I want that $0 balance!” Unfortunately, there are a few risks when you let a credit card go dormant.

 

Ignorance isn't always bliss, and a neglected credit card can lead to fraudulent charges that never get disputed. Whether you use the card once a week, once a month or once a year, you should always check your statements regularly. Report suspicious activity right away to get it resolved quickly and amicably.

 

You could also lose out on valuable reward points. Say, for example, the credit card in question offers cash back rewards on restaurant purchases. Why not get some money back when you go out to eat? If you're currently at risk of rewards or bonus points expiring, call the credit card company directly and request an extension.

 

Finally, some credit card companies will close an account entirely after a certain amount of time passes without any transactions. When it comes to your credit score, a closed account is not the same as a zero balance. Closing an account can dramatically reduce your line of credit and thus, lower your credit score.

 

If you've got a good credit score already, you'll probably be able to bounce back from this in a few years. But if you're trying to improve your score, this could derail your goals for quite a bit longer.

 

What should you do with a credit card you don't use?

If you're not sure how to proceed with a credit card, your best bet is to hold on to it, and make a game plan.

 

“Your inclination to close the card down makes sense,” says Jade Beckman, vice president of consumer loans at Mountain America Credit Union. “But it may do more harm than good in the long run. Look for ways to make that credit card work for you.”

 

Closing an account may lead to a drop in your total available credit, which ultimately affects your credit score negatively. Instead, consider these options:

 

• Use the credit card to your best rewards advantage. You don't necessarily have to use the credit card often, just keep an eye out for the types of rewards that suit your lifestyle. If you like to travel, for example, use the credit card often enough to get rewarded with a free airfare or rental car.
   

• Use for one small purchase each month. If that doesn’t work for you, consider making one small purchase on the credit card every month or so and pay it off promptly. This will keep the account active and help improve your overall credit score. Set up a small recurring monthly bill like a streaming service or just charge one tank of gas each month.

 

It does bear repeating, however, that whatever strategy you choose, always check your statements monthly—either the digital or printed version. That way, you can check for fraud and stay on top of what’s going on with your account.

 

When in doubt, speak to your preferred financial institution. If you’re still not sure what to do with your old credit card, work with them to better tailor the account to your needs, or at least to get an idea of where the credit card fits into your overall financial picture.