If you have a spending problem or you are struggling to keep up with payments, tucking your credit card away for good once it’s paid off may seem like the responsible choice. However, there are potential consequences to the “out of sight, out of mind” strategy when it comes to credit cards.
Why You Need To Use Your Credit Cards
There are two primary reasons why you should consider how often you use your credit cards:
- So your cards won’t be closed for inactivity
- To make sure that you’re getting enough value from the cards if they have annual fees
Reason number one will apply to every credit card (or charge card). Reason number two will only apply to cards with annual fees.
First, we’ll go over everything you need to know about preventing your cards from being closed for inactivity (also known as dormancy). Then we’ll touch one how to offset a card’s annual fee, and to make sure you’re getting your money’s worth.
Most personal finance advice regarding how often to use your cards focuses on inactivity. But if any of your cards have annual fees, it will be just as important to make sure you’re getting enough value from them to offset the cost.
FAQ on Credit Card Inactivity
How often should I use my credit cards to keep them active?
There is no specific minimum requirement to keep your cards active. We usually recommend using your cards once every 6 months. If you want to play it safe, use them once every three months.
Every card issuer is different. Some may close a card with a few months of inactivity (this seems rare), while others might take years. There’s no industry standard for how long an inactive account can remain. Card issuers may treat different cardholders differently depending on which card they have, their account history, and their credit profile, as well.
We’ve seen frequent reports from people that their Walmart® Credit Card was closed, which may be related to inactivity. If you have store credit cards you may want to use them every three months or so to keep them active.
You don’t have to spend a lot of money to keep your cards open, you can just use each card for one small purchase. Treat a friend to lunch, top off your gas tank, or just buy a candy bar. Any purchase will do. For an easy and minimal way to keep your card active, just add 50 cents to your digital Amazon gift card account (assuming you’ll use it later on).
There isn’t very much good data on when issuers cancel cards for inactivity. People have attempted to catalog their experiences, but it’s not really feasible because card issuers could change their policies at any time, and they may treat different cards differently. So you can’t be sure if your situation will match what you read from others.
What happens if I don’t use my credit card?
Besides being closed for inactivity, there are a couple potential dangers that could arise from throwing your card in the sock drawer and never thinking about it again:
- Rewards expire: While most reward cards have points or cash back that never expires, there are some (like certain travel rewards and store cards) whose rewards will expire after a certain period of inactivity.
- Fraudulent activity goes unnoticed: If you never check your card statement you could miss out on fraudulent activity; and if autopay is turned on, you could pay the bill without ever realizing it.
If your card is closed due to inactivity, there are a few other possible effects that may or may not apply to you.
- Potential embarrassment: It might be an uncomfortable experience to have your card declined, like if you’re out on a date.
- Loss of rewards: When a card is closed you’ll lose any rewards you’ve earned that were associated with that account, like points, miles, or cash back.
- Loss of card benefits: If you were planning to use a card benefit for an upcoming purchase or experience, like airport lounge access when booking a flight, you’ll be out of luck.
You might not be bothered by these problems, depending on your particular card and situation. But if you had hundreds of dollars worth of points saved up, or were planning to enjoy a luxurious vacation with the help of your travel perks, this could be a huge disappointment.
How can I remember to use my older credit cards?
You might throw old credit cards in a drawer and forget about them. Then, if any of them are closed your credit scores may take a hit, seemingly out of nowhere. And if you go to use that card you’ll find, to your surprise, that the card is canceled and you’re declined.
If one of your credit cards is no longer in regular use, you shouldn’t just put it away and stop thinking about it. You’ll need to use it occasionally to prevent it from being closed for inactivity. There are many strategies to remind yourself to use old credit cards, but you can break them down into two basic categories:
- Digital calendar: You can set reminders for yourself to use cards at certain dates throughout the year with tools like Google Calendar.
- Physical calendar: If you have a wall calendar or schedule book you can make notes on different months, indicating when to use which card.
You can think of the year as broken up into four quarters of 3 months each, or four seasons. If you have many credit cards to keep active, you can set up your reminders to use them each once every two quarters.
Here are a few other strategies you can consider:
- Set up a system you won’t have to think about: You can use cards to pay for the recurring charges of subscription services, like Netflix or Hulu. But don’t forget about these charges. Setting up autopay on your accounts will ensure that they’re always paid off and never late.
- Add all your credit cards to your Amazon account: If you shop on Amazon you can use credit cards to reload your Amazon balance periodically, with a minimum deposit of just 50 cents. This is just pre-paying for purchases, assuming you were going to buy those items through Amazon anyway, so it doesn’t cost you anything extra. Some card issuers will actually cancel very small balances, like those under $1.
- Use a credit card organizer: If you have a credit card organizer, like a folder or booklet, you can order all of your cards. Then, once every six months, you can simply go down the line and use each card once to keep them active.
Do credit card issuers need to notify me before closing my cards for inactivity?
No, in most cases credit card issuers do not need to send you a notice before closing your card for inactivity. Typically, you’ll be informed that your account is closed after it actually happens.
Federal law requires credit card companies to send you a notice if they cancel your card for certain reasons, and also for account changes. But not when they close your card for inactivity, or if you break the terms of the agreement in some way, such as by paying late or missing payments.
In some states, however, like California, credit card issuers are required to send a notice 30 days before closing your account for inactivity. Federal law doesn’t require a notice, but your particular state legislation might. So the laws governing credit card companies might be slightly different depending on where you live.
Credit card issuers don’t need to inform you before closing your account for inactivity, but in some cases they might do so anyway, to encourage you to keep the account open. They may send you a notice saying they’ll close the card in a month, or a few months unless you use it for a purchase.
Will a card closed for inactivity have a negative impact on my credit?
The overall effect of having a card closed on your credit scores can often be negative, but not always. Exactly how negative it will be depends on your particular credit history.
It’s important to know that a closed credit card account will stay on your credit reports for 10 years, as long as it was closed in positive standing. That means you can continue to benefit from the card account in some ways.
If your account is closed while in a delinquent status, that account will be removed from credit reports after 7 years. Cards that are canceled simply for being inactive will be reported as ending in a positive status, they won’t be counted as delinquent.
A closed account will affect your credit in several ways:
- Credit utilization ratio may go up: Losing that card’s credit limit can cause your overall credit utilization to go up immediately because you have less available credit.
- Average age of accounts goes down: Without that credit card your average account age might drop (eventually), depending on the ages of your other accounts.
- Number of accounts goes down: You’ll have one less account on your credit reports (eventually), which usually won’t have a significant impact unless you have very few other accounts.
- Variety of credit may decrease: If you don’t have many other credit cards the variety of your accounts will decrease (eventually), which can have a minor negative impact.
The most important effect of losing a card will be on your overall credit utilization rate. The other effects will take 10 years to occur if the card is closed for inactivity, but they still might be significant, depending on your particular credit profile. You’ll have 10 years to deal with those issues by improving your credit, in any case.
Credit utilization is one of the largest factors in the calculation of your credit scores (like FICO® Scores). Lower utilization is better, in general, and we typically recommend staying below 10% total utilization to keep your credit scores in top shape. A total utilization over 30% is getting into the danger zone and will start negatively impacting your credit scores.
So, depending on your overall credit card debt and credit lines, losing one credit account could have a major impact on your overall utilization.
For example, imagine you have three credit cards:
- Card A: has a balance of $2,000, with a credit limit of $6,000
- Card B: has a balance of $2,000, with a credit limit of $6,000
- Card C: has a balance of $0, with a credit limit of $8,000
In this example your total credit limit is $20,000, and your total credit card balance is $4,000. This means your overall credit utilization is 20% (because $4,000 is 20% of $20,000). This will be pretty good for your credit, although it would be better if it was lower.
What happens if Card C is suddenly closed for inactivity? That card’s credit limit will no longer be counted in the calculation. Now you’d have a total credit limit of $12,000, with the same total balance of $4,000.
Your overall credit utilization jumps up to 33.33%, which will almost certainly cause your credit scores to drop. You can quickly fix this by paying down the balances on Cards A and B. But if this isn’t feasible in your current financial situation, you’ll be stuck with a higher utilization and lower credit scores.
Why do card issuers close cards for inactivity?
Credit card inactivity can be a problem for issuers because they may not be making any money on the account. If they aren’t making any money from you, and don’t expect to any time soon, there’s no reason for them to keep your account open.
Card issuers make money in these three basic ways, among others:
- Swipe fees: Also known as processing fees, these are a small percentage of each transaction made with credit cards (paid by the merchant, not the cardholder).
- Interest payments: Charged when you carry a balance on your account with an interest rate above 0%.
- Annual fees: A yearly sum that the card issuer can always count on getting, whether you use the card or not.
So, if you’re not using one of your cards you won’t be generating swipe fees or paying interest. And if that card doesn’t have an annual fee either, there’s no way for the card issuer to make money on that account.
Closing your account then becomes in the card issuer’s best interest, because it costs them money to keep it open. And they would rather extend that credit to someone who will actually use it, as well.
Credit card companies used to be able to charge inactivity fees after some period of dormancy, but this was made illegal as part of the CARD Act of 2009. Overall, this probably created a better situation for the average cardholder, letting you keep credit cards open indefinitely for no extra cost. But it also created an incentive for card issuers to close accounts for inactivity, so it’s a bit of a double-edged sword.
Offsetting Credit Card Annual Fees
If you’re paying an annual fee for a credit card, you should make sure that you’re getting your money’s worth. The card should provide more value than the yearly fee; otherwise, it’s just draining your bank account.
There are three basic ways to get value from a credit card for this purpose:
- Rewards: Spending rewards for making purchases, and introductory bonus offers.
- Benefits: Travel perks, shopping credits, and discounts, access to presale and preferred tickets, etc.
- Credit building/rebuilding: If you have poor credit you may not be approved for credit cards without annual fees, so you might need to pay to use a card to establish a positive payment history.
The first two ways are for people who want to profit with rewards credit cards. The third way is for people who don’t have any other options, who have to settle for a card with an annual fee out of necessity.
If you’re not getting enough value from a card to justify the fee, we recommend closing that card. This is one of the few occasions that we advise closing a card, because this will usually have a negative impact on your credit, as described above.
There is no perfect answer to how often you should use your credit cards.
When it comes to keeping your cards active, we recommend using them once every six months. This should prevent card issuers from canceling them for inactivity in most cases.
If you’re worried and want to play it safe, use your cards every three months instead. And if you have any store cards, consider using them once every three months as well.
Figure out a system to keep track of your credit cards, one that works for you. Staying organized can help prevent any nasty surprises in the future when you attempt to use a card only to find it was canceled a year ago.
For cards with annual fees, you should be sure that you’re getting a good value from them relative to the cost. You can do this through the rewards you earn from making purchases, or through introductory bonuses. For some of the best credit cards, the benefits you get can go a long way towards offsetting the fee, and can even provide a positive value beyond that.
Or, you may need to apply for cards with annual fees because your credit isn’t good enough for no-fee cards. If that’s your situation, be sure to look into your options and choose your card carefully.