Since credit card companies don’t have to give you a warning, this could come out of the blue – your credit card is suddenly closed due to inactivity and your credit score drops. Generally, you run the risk of your credit card being closed after 12 months of inactivity, but it can also take just a few months, so it’s hard to predict. Here’s what you can do to avoid a surprise ahead of time without giving it too much thought.
Why don’t credit card companies warn you?
They don’t necessarily have to. According to ForbesThe Credit Card Act of 2009 says that creditors must notify borrowers 45 days in advance of significant changes to the terms of their accounts, but courts have subsequently ruled that credit card cancellations due to inactivity do not apply. That doesn’t mean banks won’t give you 30 days’ notice (some state laws To do require), it’s just not guaranteed.
Also according to ForbesSince banks lose up to $ 100 per year per idle card, they are incentivized to close accounts. This could explain why the range of acceptable inactivity ranges from a few months to a few years, although it is usually a year (if your card has an annual fee, it is less likely to be closed than a card at no cost).
That said, if you’re unclear about your card’s policies, your card’s terms and conditions agreement should include some information about how they handle inactive accounts.
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Why does it matter?
If a credit card is closed unexpectedly, it can seriously hurt your credit, sometimes at the worst, like when you’re about to apply for a loan. That’s because 55% of your credit score is based on how much unused credit you have available, the average age of your lines of credit, and the mix of credit you have (eg, mortgages, car loans, credit cards). If you suddenly lose a card, it will affect those categories. Some research suggests that, at least anecdotally, a closed credit card can lower your credit score by about 100 points.
What’s the best way to avoid an idle card?
The obvious answer is to use all of your credit cards for at least one purchase every few months, although unless you make a point of it it can be easy to forget about it, especially if you don’t have all of your cards with you. you have.
Instead, a simpler “set it and forget” approach is to schedule your card to pay for a cheap, recurring subscription you already have. If it’s a rare plan – every three or six months, say – even better. In my case, I’m using an old card to automatically pay for my Spotify subscription – and nothing else. I’ve also set up my card so that my checking account automatically pays the balance every month, in case I forget the card exists (because it’s in a drawer somewhere).
By doing that, I actually only use my longest-term credit card (over ten years) for the credit history, and to a lesser extent for the additional total credit, entirely to keep my credit score high. And it works.