For many people using a credit card is a daily occurrence, and for others, it may be reserved for financial emergencies. Regardless of how you use or don't use your credit card, knowing how that use or disuse can affect your credit is important to maintaining good credit health. Not using your credit card can affect your credit in a couple of different ways.
If you have a single credit card and don't use it, it won't hurt your credit at all unless the account closes. If you have multiple credit cards that you use frequently, and you stop using one of them, it can actually provide a boost to your credit score and overall creditworthiness.
Several caveats come with ceasing the use of a specific credit card, particularly if you hold cards that accumulate or earn rewards with purchases. There are also terms with many card issuers that terminate accounts due to inactivity after a specified period without any use at all. We're going to do a deep dive into the specifics of each situation so that you have all the information you need to understand what happens if you don't use your credit card.
Is It Bad To Not Use A Credit Card?
The short answer is no, not using a credit card is not inherently bad. It certainly is a lot better than overusing one to the point of financial distress, after all. The long answer, however, becomes a bit more complicated and will depend on just what cards you have, who issued them, and what types of terms those cards come with.
Some card issuers will begin to nullify points, miles, or other rewards that are unredeemed following a period of inactivity. This period can vary significantly from one card to another and is frequently between 6 months and 12 months of inactivity. There is no standard or legally mandated length of time that creditors must wait before closing accounts due to inactivity.
It's also worth noting that if you carry a balance, you won't suddenly be relieved of that balance because you stop putting new charges on the card. And unpaid balances that your account carries will continue to accumulate interest charges, as well as late fees if you haven't been making payments. If your balance is $0, however, then you obviously won't be sending in any payments.
There are definite benefits to not using a credit card, periodically at least if you're trying to build a good credit history or trying to repair damaged credit history. Whether you're just performing a credit clean-up or getting ready to apply for a mortgage or vehicle loan, stopping use and paying off a credit card while keeping the account open can have significant credit benefits.
One of the major factors that are used to calculate your credit score is a metric called your credit utilization rate. This is a percentage based on the ratio of your used credit versus your available credit limits and is calculated using the total of all lines of credit you have. If you only have one credit card, for example, and the limit is $1,000 of which you've used $500, you have a 50% credit utilization rate.
The same concept can be applied to multiple lines of credit; for example, suppose you have three cards, and each of them has a $1,000 limit. On two of the cards, you have a $500 balance, but the third card is paid off and inactive; you would have a credit utilization rate of just over 33%.
Your credit utilization will include all lines of credit that have been extended to you. It will include all credit cards, home equity lines of credit, and so on. The ideal credit utilization is reported to be 30% or less, which can often be relatively easy to track and manage if you only have a couple of credit cards or less. However, if you only have one or two, having one closed for inactivity can also drastically swing your utilization rate.
Do I Have To Use My Credit Card?
There are a few things to consider when asking yourself if you have to use your credit card. The first thing you'll need to consider is if carrying the card comes with any expense, in and of itself. Next, if you have any sort of rewards card, you'll need to dig into the card issuer's terms to find out if inactivity comes with any drawbacks, as well as how long you'll have to bring the card active again before the account is closed. Finally, ask yourself if using a credit card is contributing in any positive way to your finances or credit.
Many cards have annual fees for maintaining the account, and these fees will apply even if you aren't using the card. In most cases, they will be automatically charged to the card, which means you will need to pay them each year regardless of use. In these cases, be sure that keeping the card open is worth the yearly expense of actually having that card instead of one with no annual fee.
Some rewards cards issuers have stipulations that require periodic use to maintain point, mile, or reward validity. These cards will have terms that put expirations on your rewards once the card usage stops, which means you'll either need to use your rewards before they expire or keep using the card to replace points that expired and were deducted from the rewards balance. It goes without saying that if you have a rewards card that the issuer closes for inactivity, any rewards that you had built up or accumulated will be permanently lost.
Finally, if you have a credit card that you no longer use and don't want to worry about it being suddenly closed, ask yourself if the card is helping you at all, either through use or disuse, if keeping the account open isn't helping your credit situation, there isn't any reason to keep it open, consider making one final small charge to complete your payment history, and ask that the card be closed once that final balance is paid. This will help "bookend" the account if it's already gone a while without use.
Does It Hurt Your Credit If You Don't Use Your Credit Card?
Your card issuing bank will have all of the information relating to usage guidelines and requirements that you'll need to fulfill to keep your account active, and these points are crucial to understanding. If you go too long without charging anything to the card, your issuer may decide to close the account due to inactivity, which can hurt your credit health.
One of the criteria that creditors use to objectively assess a consumer's credit standing is the length of their credit history. Longer credit histories indicate that the consumer has been able to maintain credit accounts in good standing for longer periods, making them a more reliable borrower or debtor. Shorter credit histories aren't inherently bad, but they also only paint a limited picture of the creditworthiness of a consumer.
When you first start out building credit, each credit account you open will begin being reported to the three main credit reporting bureaus. They receive information like when you opened the account, the credit limit for the account, information on current balances, and records relating to your payment history. The payment history is either recorded as "on time" or recorded as late in one of several categories relating to how late the payment was.
For people with multiple credit cards, this won't matter as much since other accounts will record payment and account history during any gaps in usage on other cards. However, this can have a greater effect on consumers that only have a single credit card. If there is usage on the card initially, which subsequently falls off and eventually stops, normally, that wouldn't have any negative effects on the account. If the card issuer decides to close the account for inactivity, however, it will truncate the credit & payment history back to the last payment.
This means that if you opened a card in January 2021 and used it periodically until June 2021 then suddenly paid it all off and stopped using it entirely, it would become inactive. If your card issuer stipulates that they will close accounts after 12 months of inactivity, the account would likely be closed in June 2022, but this would shorten the credit history of that account by a full year since that's when you made the last payment. New creditors could look at this and decide that your history is too thin and may deny applications based on that impression.
Understanding How Your Credit Usage Can Help Or Hurt Is Important
Credit cards, while simple on the surface, can turn out to be incredibly complicated little pieces of plastic. Understanding how they can help or hurt your credit health based on your usage is important to your overall financial health. Knowing when to use a credit card and when to stop using one can be crucial information in keeping your credit accounts open and active and keeping your credit score looking good.
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Shawn Manaher is a former financial advisor, has founded 5 online businesses, and is a coach, speaker, podcast host, and author. He's been featured on Forbes, The Consults Corner on TAE Radio, The Writing Biz, What's Your Story, and more.