When you go years, or even months, without charging anything on a credit card, don't be surprised if the issuer cancels your account. A credit card issuer has the legal right to close your account as it deems necessary, and inactivity is one of the most common reasons for closure.
Your credit card issuer might let you know in advance that account will be closed, but they're not required to give you notice. Some companies close your account first, then send you a letter telling you that it has been closed. Some cardholders don't even realize their card has been closed until they try to use it and the card is declined.
Why Creditors Close Inactive Accounts
It all comes down to a business decision. Companies have a limit to the amount of credit they can extend, and they'd rather the lines of credit go to people who are going to make charges and incur interest. After all, that's a big part of how credit card companies make money. Closing your unused credit card gives the card issuer the ability to extend that line of credit to another borrower who will actually use the account—and help boost their bottom line.
What Inactivity Cancellations Do to Your Credit Score
If your account is closed it could increase your overall credit utilization—depending on the balance on all of your credit cards—which can hurt your overall credit score.
Your credit utilization is the amount of available credit you're using, and it counts for 30% of your credit score. When a credit card is closed, that credit limit is no longer considered in your credit utilization. So, if you have balances on all your other credit cards, your utilization increases.
For example, if you had a total of $3,000 in credit card debt and a $5,000 total credit limit, your credit utilization would be 60%. If a credit card with a $1,000 limit was closed, your credit utilization would rise to 75%. A credit utilization that's lower than 10% is ideal. Anything above 30% is too much.
Though it has been widely reported that a closed credit card hurts your credit by shortening your credit age, it's not entirely true—not yet at least. As long as the account appears on your credit report, it's still factored into your credit score. It's not until the account drops off your credit report (in about 10 years) that your credit age could be affected, particularly if it's your oldest credit card.
What Can You Do About It
If you find out your credit card is being canceled because of inactivity, and it's a card you want to keep open, call your credit card issuer and request to keep it open. Offer to make a purchase on that account immediately in exchange for having it reopened.
You may not be able to convince the issuer to reopen a closed credit card, but you may be able to have the credit limit moved to another credit card with that same issuer if you have one. While that won't eliminate credit score losses due to a shorter credit age, it will help you in the credit utilization area.
You can also decrease the effect of a closed credit card by paying off some of your credit card debt or by requesting credit limit increases from your other credit card issuers. The card issuer will consider your credit history, time since last increase, current income, and other factors to decide whether to increase your credit limit. If you have a joint credit card, both cardholders' credit histories and other factors will be considered.
How to Prevent Inactive Credit Card Closings
There's not a standard inactivity time limit, so it's difficult to predict when a credit card issuer would close your credit card. It could be six months, one year, two years, or more.
You can prevent inactivity cancellations by using your credit card periodically. One easy way to do this is to put one or all of your recurring bills—charges you expect to pay anyway every month—on the credit card, such as your phone or utility bills. Or, make a small charge on your credit card every two to three months and pay the balance in full when you receive the statement. That way you keep your credit card open and active and your balance paid off.