The Easiest Way to Prevent Card Closure Due to Inactivity
Since credit card companies are not required to warn you, this can happen out of the blue – your credit card suddenly closes due to inactivity and your credit score goes down. Typically, you run the risk of closing your credit card after 12 months of inactivity, but it could be several months later, so it’s difficult to predict. Here’s what you can do to prevent a surprise early without thinking about it.
Why aren’t credit card companies warning you?
They don’t have to do it. According to Forbes , the Credit Card Act of 2009 states that lenders must notify borrowers of major changes in their account terms 45 days in advance, but courts subsequently ruled that credit card cancellation due to inaction did not apply. This does not mean that banks will not give you 30 days notice (some state laws do not require it), it is simply not guaranteed.
Also according to Forbes , since banks lose up to $ 100 a year on each inactive card, they are interested in closing accounts. This may explain why the range of allowed inactivity ranges from several months to several years, although it is usually a year (if your card has an annual fee, it is less likely to be closed than a card without a fee).
However, if you are unclear about your card’s policies, there should be some information in your card’s terms and conditions of use about how they handle inactive accounts.
Why does it matter?
An unexpected credit card closure can seriously damage your credit rating, sometimes even at the most inopportune moment, such as when you are about to apply for a loan. This is because 55% of your credit rating depends on how many unused loans you have, the average age of your lines of credit, and the combination of loans you have (e.g. mortgages, car loans, credit cards). If you suddenly lose your card, these categories will be affected. 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 prevent card inactivity?
The obvious answer is to use each of your credit cards for at least one purchase every few months, although if you don’t do this too much it’s easy to forget about it, especially if you don’t carry all of your cards with you.
Instead, a simpler “fit and forget” approach is to plan your card to pay for the cheap recurring subscription you already have. If it’s an infrequent subscription – say every three or six months – even better. In my case, I use an old card to automatically pay for my Spotify subscription – nothing else. I also set up my card so that my checking account automatically pays out the balance every month, just in case I forget the card exists (since it’s hidden somewhere in a drawer).
In doing so, I actually use my oldest credit card (over ten years) for credit history and, to a lesser extent, additional overall credit history, solely to keep my credit rating high. And it works.