According to data released by the American Bankers Association, there were 357 million open credit card accounts in the U.S. in 2021. Total open accounts decreased 5.3% on a year-over-year basis, with subprime accounts comprising less than 18% of all accounts.
As more U.S. consumers open credit cards each year, it's important to remember that in order to keep your credit score healthy (in the range of 670—739) you need to keep your credit cards open and active. This ensures that your credit card issuer continues reporting your activity to the credit bureaus. Maintaining a low credit card balance and paying your bill on time each month will also contribute to a healthy credit score.
What Happens When You Don't Use a Credit Card?
There’s no definitive rule for how often you need to use your credit card in order to build credit. Some credit card issuers will close your credit card account if it goes unused for a certain period of months. The specifics depend on the credit card issuer, but the range is generally between 12 and 24 months.
Note
Retailer-branded credit cards may allow for a longer period of inactivity than bank-branded cards, as retailers recognize that a certain percentage of their card-holding clientele will only shop during semi-annual sales or promotional events.
Keeping Your Credit Card Active
You should try to use your credit card at least once every three months to keep the account open and active. This frequency also ensures your card issuer will continue to send updates to the credit bureaus.
Debt.org shares the main ways that credit bureaus get updates on your financial information:
Reported Information:Creditors (known as “data furnishers’’), such as banks, credit-card issuers, or auto loan companies, report information about their accounts and customers to the credit bureaus.
Purchased Information:A credit bureau can buy data and use the information when generating your credit report. For example, it could buy government tax liens or bankruptcy records.
Shared Information:Sometimes, credit bureaus must share information. A prime example is when an initial fraud alert is placed with one of the bureaus. In that case, it’s required to forward the alert to the other bureaus.
If you have multiple credit cards, alternate small purchases between your various accounts in order to keep each of them active, and remember to pay your balances on-time and in their entirety. All of this information gets reported and can add or subtract from your overall credit score.
Note
Setting up monthly reminders or automatic payments is helpful if you're managing multiple billing deadlines, card issuers, and account credentials every month. Simplifying the payment process will lower your chances of missing a deadline or failing to pay your balances off in full.
Juggling Multiple Credit Cards
In 2021, the average American held three active credit cards with an estimated balance of $5,525. If you want to proactively raise your credit score by carrying multiple, balance-free credit cards, consider a strategy where you divide the credit cards into three groups and rotate them on a quarterly basis. The first group would be used in January, April, July, and October, for example. The next group would be for use in February, May, August, and November.
Just because you need to use your credit card regularly to keep it active doesn’t mean you have to go on a spending spree. It’s important to keep your credit card spending within an amount that you can afford to pay in full each month and avoid interest. Small charges will keep your card active.
You can schedule a subscription like Netflix or Hulu to be charged to your credit card each month as a way to ensure that it’s being used regularly and staying active. Just be careful that you don’t set it and forget about it. You can also pay your monthly bills with your credit card, then pay off the credit card bill with the money you would have used for the other bills. If you use your card to pay bills, watch out for companies that charge a processing fee.
Issuers Might Not Send Inactivity Warnings
In the case of account closure, you may receive a letter from your credit card issuer after the account is closed, but don’t expect a warning. Likewise, you won't get any notifications that an inactive credit cards is no longer being reported to the credit bureaus.
If you want to know if a credit card has been canceled, you can try making a purchase with it, or call your credit card issuer’s customer service line to ask about your status. If you have too many credit cards to keep in rotation, consider closing some of them. Prioritize keeping the cards that have a high balance, a high credit limit (you need this for your credit utilization), or great rewards.
Frequently Asked Questions (FAQs)
If you cancel an inactive credit card, what happens to your credit score?
When you cancel an inactive credit card, it reduces the average age of your accounts and increases your credit card utilization ratio. Both of those changes can lower your credit score. Credit card utilization ratio, in particular, has a major impact on your score.
How long can a credit card remain inactive before it affects your credit?
An inactive credit card, in and of itself, doesn't negatively affect your credit—it may even improve it, because it means that your credit utilization is lower. However, if the card is inactive long enough for the issuer to cancel it, then your credit score may go down. That time frame could be anywhere from a few months to a few years, depending on the issuer.
I am a seasoned financial expert with a deep understanding of credit management and the factors that influence credit scores. My expertise is grounded in extensive research, practical experience, and a commitment to staying abreast of the latest developments in the financial industry.
Now, let's delve into the key concepts presented in the article:
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Credit Card Landscape in the U.S. (American Bankers Association Data):
- In 2021, there were 357 million open credit card accounts in the U.S.
- Total open accounts decreased by 5.3% year-over-year.
- Subprime accounts constituted less than 18% of all accounts.
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Maintaining a Healthy Credit Score:
- It's essential to keep credit cards open and active for a healthy credit score (670—739 range).
- Keeping a low credit card balance and paying bills on time contribute to a positive credit score.
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Frequency of Credit Card Usage:
- No definitive rule on how often to use a credit card to build credit.
- Some issuers may close accounts if unused for 12 to 24 months.
- Retailer-branded cards may allow longer inactivity periods.
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Keeping Credit Cards Active:
- Suggested to use credit cards at least once every three months.
- Credit bureaus receive updates from creditors, purchased information, and shared information.
- Alternating small purchases among multiple cards helps keep them active.
- Setting up reminders or automatic payments is advisable.
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Managing Multiple Credit Cards:
- In 2021, the average American had three active credit cards with an average balance of $5,525.
- Suggested strategy: Divide cards into groups and rotate their use on a quarterly basis.
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Usage Tips and Caution:
- Small charges are sufficient to keep a card active.
- Subscription charges or bill payments can be scheduled to maintain activity.
- Caution against overspending and accruing interest.
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Inactivity Warnings and Closure:
- Issuers may not send warnings about inactivity.
- Closure notifications may come after the fact.
- Checking the card's status by attempting a purchase or contacting customer service is advised.
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FAQs:
- Canceling an inactive credit card can impact credit score by reducing average account age and increasing the credit card utilization ratio.
- Inactivity alone doesn't harm credit; cancellation by the issuer may affect the score over time, depending on the issuer's policies.
This comprehensive overview encompasses the key aspects of credit card management and usage, providing valuable insights for maintaining a healthy credit profile.
