Many may open an account and get a credit card, but not all are habituated to using it regularly. This may not seem like a problem, but you may face issues for not using your credit card.
Though it varies from company to company, your account may get closed if you don’t use your credit card for a year. While some issuers may shut down your account after 6 months of inactivity, others take one or more years.
Therefore, it is obvious that your account would get closed if you don’t work with your credit card for a certain period.
Why Do Issuers Close Your Inactive Credit Card?
Wondering why credit card companies shut down your account due to having an inactive credit card? Because it is a loss for them to hold back inactive accounts.
Credit card companies can’t extend credit to an unlimited extent. Inactive credit cards hamper their business as no transactions are being made, and they get no interest and charge benefits. A stagnant account means no cash flow that makes the company suffer.
When they close your inactive account, they can extend the credit line to a new user who would utilize the card, pay back the amount spent, and benefit the business of the company.
Therefore, as inactive accounts are disadvantageous for issuers, they decide to shut down these accounts.
Does An Issuer Have The Right To Close Your Account Due To An Inactive Credit Card?
An issuer has legal rights to close your account if the reason is valid. Inactivity of a credit card is a common and legitimate reason for credit card companies to close your credit card as you no longer benefit the company.
Remember that an issuer is not bound to inform you before closing your account. They may choose to inform you prior about the issue. But generally, a credit card company would send you a notice after closing your account. And some may choose not to notify you at all.
An issuer has complete rights and legal support to close an inactive account. So, it is better to read the terms and policies so that you don’t need to face such consequences.
How Long Before An Inactive Credit Card Is Closed?
The duration for which you can keep your credit card inactive varies from company to company. While most issuers spare the inactive users for a year, some may close your account in 6 months of inactivity. Others may extend the time up to two or three years.
You should read the terms and conditions and policies before signing for a credit card. It should be written in the policy about how you must use the card to prevent it from closing. You would get to learn about the duration from the policy papers only.
Do You Need To Pay The Balance Of A Closed Credit Card?
Don’t live in the dream that you won’t need to pay the debt if your account gets closed. This is not the case.
No matter how much balance you have in your closed account, you are liable and bound to pay the amount to the company. You may choose to pay back the minimum due or give more.
Sometimes the issuer may sell the balance to a third party debt collector. In that case, you can either pay the amount at once or pay in installments to the third-party. Some parties may reduce the payable amount too.
No matter what the case is, you have to pay back your balance even if the account closes.
Does Inactive Card Affect Your Credit Score?
Inactive card history is crucially negative for your credit score and can be harmful to your further financial life. As your credit score determines the amount of loan and other financial benefits you get, the credit score is indeed an important aspect to take care of.
The very first factor that would be affected is your credit utilization rate. Credit utilization rate is the ratio between the amount of credit you need to repay vs your credit limit. While a low utilization rate shows you as a responsible user and improves your credit score, no transaction at all would substantially decrease your credit score.
The credit score drops as the lenders won’t get to learn about your purchasing and repaying pattern. They can’t identify you as a responsible user if you don’t show them. And when you are not using your credit score, your credit history becomes stagnant as well.
Don’t confuse zero balance with an inactive credit card. You can still improve your credit card score with no balance by repaying on time. But an inactive account shows no record at all.
A closed account itself would hamper the credit utilization rate as you are left with no credit affecting your credit score.
Besides, the credit history age would be reduced if you have a closed credit card account. However, this doesn’t happen until your account is removed from the credit report. But after a certain time, the account is removed from the report if you don’t take any action.
What Can You Do With Your Closed Account?
If you want to get back your account, you need to place a request to the issuer and make a purchase immediately to activate the account. However, your issuer may not always agree with this proposal.
If the issuer rejects you, you can ask him to transfer the available credit to another credit card (if you have any). Though it won’t improve your credit score, it can help you in improving your credit utilization rate.
The last way is to request other issuers to increase the credit limit or repay a part of the debt. Considering your financial history, income, etc. the issuer may increase the credit limit. It would help you in improving your credit score only if you act responsibly.
Conclusion:
All in all, it is obvious that your credit would be closed if it is inactive. However, you have learned the solutions and understood how a closed account and an inactive account can impact your credit score and history.
Therefore, it is a wise decision to keep your credit card active by making small purchases so that you don’t face negative consequences.
