We live in a digital era where credit and debit cards are used for most of our purchases. Gone are the days when people used to prefer using plastic money and keeping some cash on hand. But, of course, it’s a modern practice that is convenient, wallet-friendly, and financially secure.
However, anytime a greater sign-up bonus or overall benefits are available, we tend to apply for a new credit card. And thankfully, this occurs frequently, as banks and credit card firms all fight to improve sales by presenting new incentives to customers.
- This credit card is the best in Canada to improve your Equifax credit score!
- This secured card doesn’t require stellar credit history!
- This rewards card is perfect for earning travel miles!
You’ve probably seen similar offers and wished to take advantage of them before they were gone! Unfortunately, when you obtain a new card, you frequently forget to use your old one. So, will all those inactive cards be harmful to your struggling credit? Is it better to close old cards? Or, just let them rest in your wallet?
Let’s find answers to these and many more questions!
What Are Inactive Credit Cards?
Do you know what inactive credit cards are? Look into your purse or wallet. Do you see multiple credit cards? Good! Now, pick the ones you often use, whether online shopping or paying bills. All the credit cards left in your wallet can be deemed ‘inactive credit cards.’ Why? Because you no longer use them.
Moreover, your lender is highly likable to consider them inactive after a long ‘not-in-use’ period. And if they’re just resting your wallet doing nothing, there’s a higher chance your lender might have already ‘closed’ your accounts. So, it might be the reason why you’re noticing no improvement in your credit score despite all the effort.
- According to Experian, inactive credit cards are all the issued credit cards that were opened but never used or were in use at one time but haven’t had any balance amount for more than 6 or 12 months.
- Moreover, it can also be any of your blocked, closed, or deactivated cards.
So, what could be the cause of card inactivity?
Well, there could be many reasons why this could happen. For example:
- You no longer use your first credit card as you just bought it to start your credit card journey.
- You liked the card, but the customer support management or lender’s involvement was not up to your expectations.
- You no longer go to the gas station or grocery store you used the card for.
There could be many reasons to stop using a credit card. But, the question arises of whether or not the inactivity can take a dump on your credit.
Can A Credit Card Be Closed Due To Inactivity?
Yes! Your credit card might be closed or canceled due to inactivity. However, because there is no set inactivity time frame, it’s difficult to estimate when the lender will cancel your credit card. It could even be 6 months, a year, a year and a half, or even longer.
Furthermore, Ben Luthi explains that the lender isn’t obliged to notify you even if they cancel or close your credit card due to inactivity.
- The lender makes money from the transaction fees, penalties, or all the profits in the form of interest.
- So, when you stop using your credit card, there will be no balance in the account and thus no interest to pay or fees to deduct
Thus, the card is of no use to the lender. In fact, the company had to spend the money to maintain the infrastructure and the services on that specific card. So, the deal is not benefitting the card company; hence they close or cancel the card after a time.
Can the inactivity affect your credit score?
To answer simply, as long as your account is ‘open’ despite being inactive, it won’t hurt your credit history or score. However, the tables can turn if your lender closes your account due to that inactivity, as it might result in an inquiry on your account, thus causing your credit score to change for the worse. Moreover, it might also affect your credit mortgage rates!
So, let’s get into the details in the next section:
Are Inactive Credit Cards Hurtful?
An unused credit card can nevertheless help you improve your credit score if left alone. Inactive credit cards can boost your credit use, credit history length and widen the credit mix accounts on your credit report. However, your supplier may cancel an inactive credit card after a specified time. So, the canceled credit card may affect your credit score because it impacts your credit utilization, age of credit history, and credit mix.
Here’s what you need to know:
- Increased Credit Utilization
If a creditor decides to terminate your unused card, you will no longer have the credit activities available on that card. Hence, your credit limit will be decreased, resulting in a rise in credit utilization. So, your credit score will be greatly hit if your credit utilization ratio suddenly jumps above 30%.
- Casey Bond explains that the lower your credit utilization rate, the better it will be for your credit score.
- The reason to mention here is that when your inactive credit card is closed, it will directly negatively impact your credit score by increasing the credit utilization rate.
So, if you don’t want to lose any of your credit activities, it’s wise to keep a check on your inactive credit cards. We’ll be discussing how you can recover a credit card in later sections. Keep reading to know how!
- Decreased Credit History
Creditors check the credit history to see if you can manage your funds appropriately. If your provider cancels your unused credit card, it will reduce the average length of your active credit accounts, which could hurt your credit score. It could have a significant influence on your credit score if your closed credit card was your earliest credit account.
- Your credit history tells creditors about the length of time you’ve had open credit accounts, the age of your earliest active credit account, and the average age of each of your credit card accounts.
- As your credit score calculation considers a 15% credit history (by Equifax Canada), the moment your inactive credit card becomes closed, it will cause your credit history to lower.
Canceled credit cards won’t affect the age of your credit history right away, but they could impact your score in the long run. So, you must be thinking, why? A closed credit card account can linger on your credit report for up to ten years after you cancel it. For this reason, many credit experts advise keeping your oldest credit card open, particularly if you have a limited credit history.
Can You Recover A Closed Credit Card?
You might be able to reinstate a closed or canceled credit card account, but it will rely on the reason for the closure and the policies of your issuer. There’s no assurance your account will be reopened, specifically if it was terminated due to inactivity, pending balance, or other issues. Here’s how you can recover:
- Contact Your Card Issuer!
The easiest and simplest way to recover your closed credit account is by contacting customer support and requesting that it be reopened. You’ll probably need to explain why you want to reopen the closed account, and you might also be asked to provide the reasons why it was closed in the first place.
- For instance, the closed card was your very first credit card. But, while manifesting money and wealth for your monetary security, you believed the card wasn’t suited to your financial condition. So, you bought a new one with favorable terms. And, hence forgot about using that card.
- Or, the card incentives simply weren’t according to your demands, i.e., they had high-interest rates or transaction fees.
Of course, there might be many reasons (we have explained some of them in the above sections), but you have to give the reasoning to the card issuer to convince them it wasn’t your fault.
- Prove Your Financial Responsibility
Whatever the reason might be, when you want to reopen your closed credit card, the lender will be skeptical about doing that. The reason being you might stop using the card again anytime soon. Moreover, the interest, offers, bonuses, and basic terms and conditions might also change when you re-apply for the card.
So, you have to really prove your case, and only then can the lender trust you and agree to reopen your closed card. Of course, it can help your score as you can get access to the lost credit history, credit mix, and all the credit activities.
Note: However, there’s no guarantee your application will be accepted, and it really depends on the lender or card issuer whether or not they’ll re-open the credit account.
What If You Can’t Recover Your Closed Credit Account?
There are situations when reopening a closed account isn’t worth it or when your issuer won’t allow it. For instance, the closed account didn’t have a stellar history, or the inactivity didn’t affect your credit score much. Whatever the reason, evaluate the advantages of attempting to reopen a canceled account against just applying for a new card. Here’s what you can do:
- Consider Getting A New Credit Card
The point is the closed card was inactive for a reason. It wasn’t much help to your credit history or score; that’s why you stopped using it in the first place. Moreover, you can’t keep a card open forever when it’s doing nothing for your financial stability.
- If your closed account had a poor age of credit history, you could consider getting a new one to build again!
- Of course, you have to keep using the card, so it’s advisable to look for a card that provides favorable terms.
Bonus: Applying for a secured credit card can be your best bet if you want to slowly yet conveniently raise your score, history, and overall credit profile.
- Get Professional Help!
However, the scenario can be different if the closed credit account decreased your credit mix and history or increased your credit utilization ratio. Therefore, you might want to reconsider your option of ignoring the canceled card if it was your oldest account.
- Visit The Bank/Credit Company:
Of course, calling customer support can help your case, but visiting the company with the relevant documents will only increase your chances. Then, you can explain your case in a better manner with the reasons why you deserve to reopen the account.
- Talk To A Credit Expert:
The key is first to try everything you can to recover your closed account, and if you believe the things aren’t working in your favor, you can seek help from a professional.
- Should you close all of your inactive credit accounts?
In general, it’s preferable to keep your unused and inactive credit cards active and open to profit from a relatively long credit history and more available credit. In fact, credit scoring methods will work in your favor with lower credit utilization and high credit.
- What happens when a creditor closes your inactive credit account?
Inactive credit accounts are frequently closed by creditors when they reach a set time limit (6 or 12 months). If your account had a good credit factor despite the inactivity, the closed account would hurt your credit score (by affecting credit utilization and credit history).
Inactivity will potentially result in your credit card being canceled, so keep at least a tiny bit of engagement on each of your active accounts. Since a closed account might negatively affect your credit score, try to keep your cards open and active as much as possible. However, don’t forget to consider the worth of your credit card in terms of credit history length and overall credit stability.