How Does Credit Card Inactivity Impact Your Credit Score?

When trying to improve your credit score, you’ll have to be aware of many factors, including your payment history, age of open accounts, utilization ratio, etc. It seems like a lot to keep track of, but it could be worth it in the long run if you are able to maintain a good credit score. A good credit score can help you get better interest rates and ultimately save money on both large and small purchases.

You might not be aware of how much credit card inactivity affects your credit report. Cancelling your credit card or allowing your card issuer to cancel your credit card due to inactivity may seem like a good thing. After all, the less credit you use, the better, right?

You don’t have to charge more than you can afford or keep credit cards if you don’t need them, but aim to be more strategic and knowledgeable about how credit card usage can impact both your credit card account and credit score overall.

What Is Credit Card Inactivity?

Credit card inactivity occurs when you don’t use your credit card for extended periods of time. Perhaps you only use your credit card for emergencies or you have multiple credit cards, and don’t need to use them all frequently.

Though you are likely handling your money well, you could be at risk of the credit card issuer closing your account due to infrequent card use. Though each issuer has different guidelines for what qualifies as infrequent use, all of them are mandated by the government to notify you of account closure, or any other significant changes, within 45 days of taking that action. You may be able to use your card and prevent this action if it’s done in enough time.

Does Cancelling a Credit Card Hurt Your Credit?

For the sake of this discussion, we’ll consider card cancellations that are initiated by both the cardholder and card issuer – as they can have the same effect. When you cancel a credit card, you are affecting two components of the credit scoring algorithm: the age of your accounts and your utilization ratio.

The age of your accounts is important. In other words, older, more “seasoned” tradelines tend to boost your credit score.

The second affected component of your credit score is your credit card utilization ratio. When you close an account, the amount of available credit is decreased. Unless you also decrease the amount of credit you are using by paying down balances on open accounts, your overall credit utilization ratio could increase – which tends to negatively impact your credit score.

How Do You Cancel a Credit Card?

Many times, you can cancel your credit card account through your online credit card account portal. Look for a “cancellation” or “close account” option on your account page. If you are unable to find this option in your account, you can call the phone number located on the back of your card.

In most cases, closing your account online or over the phone should be sufficient. However, you could always send a letter to the card issuer via certified mail just to be sure. This ensures that there is a written record of your account closure request on file with the issuing bank.

How Does a Closed Account Affect Your Credit Score?

If your credit history is positive with a closed account history, there should not be a negative impact on your credit score. However, if the account is closed and includes negative history, this could adversely affect your credit score for up to seven years.

Can You Have a Closed Account Removed from Your Credit Report?

If you close an account with a positive payment history, it will remain on your credit report for up to 10 years. If this account has a negative payment history, then it will remain on your report for seven years.

You can chose to “pay for delete,” where you request the removal of an item from your credit report upon payment, but it’s not guaranteed. Technically, this violates the creditor’s agreement to report accurate information to the credit bureaus. However, according to Experian, new scoring models may begin to exclude negative, yet paid accounts in collections.

Should I Cancel My Credit Card?

If you have to cancel your credit card, you should consider paying off other debt so that your utilization ratio remains low. Another option is to get an increase on your credit lines for other open credit cards.

In some situations, it might make sense to cancel a credit card because you don’t want to pay the annual fee any longer. Just be aware that losing an older account could have a negative impact on your credit report.

Finally, if you decide you’d like to keep a card open that you use infrequently, you can ask the card issuer about their timeline on credit card inactivity and account closure. Then, you could use the card within those guidelines to keep it open.

You could also set up a small recurring charge on the card and pay it each month. Setting up autopay for the monthly billing statement will make sure you make on-time payments so that your credit score is not negatively affected.

If you want to know your current credit score, be sure to check out QL Credit.

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