Since credit card companies are not required to give you any warning, it can come out of the blue—your credit card is suddenly closed due to inactivity, and your credit score drops. Generally, you risk having your credit card closed after 12 months of inactivity, but it can be just a few months, too, so it’s hard to predict. Here’s what you can do to prevent a surprise ahead of time without thinking too much about it.
Why don’t credit card companies warn you?
They don’t necessarily have to. According to Forbes, the Credit Card Act of 2009 says that creditors must give borrowers 45 days’ notice of major changes to the terms of their accounts, but courts have subsequently established that credit card cancellation due to inactivity doesn’t apply. That doesn’t mean banks won’t give you 30-days notice (some state laws do require it), it’s just not guaranteed.
Also according to Forbes, since banks lose up to $100 a year per inactive card, they’re incentivized to close accounts. This might explain why the range of acceptable inactivity varies from a few months to a few years, although it’s commonly a year (if your card has an annual fee, it’s less likely to be closed than a no-fee card).
That all said, if you’re unclear about your card’s policy, your card’s terms and conditions agreement should have some information about how they handle inactive accounts.
Why does it matter?
Having a credit card closed unexpectedly can do some serious damage to your credit score, sometimes at the worst time—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 (e.g., mortgages, car loans, credit cards). If you suddenly lose a card, those categories are affected. Some research suggests that, at least anecdotally speaking, a closed credit card can drop your credit score by around 100 points.
What’s the best way to prevent an inactive card?
The obvious answer is to use each 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—especially if you don’t carry all of your cards.
Instead, a simpler “set and forget” approach is to schedule your card so that it pays for a cheap, recurring subscription that 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—and nothing else. I also set up my card so that my checking account automatically pays the balance each month, just in case I forget the card exists (since it’s buried in a drawer somewhere).
By doing that, I’m really just using my longest standing credit card (over ten years) for the credit history, and to a lesser extent for the extra overall credit, entirely for the purpose of keeping my credit score elevated. And it works.