Because credit card companies aren’t required to warn you, they can get out of the signal: your credit card suddenly shuts down due to inactivity and your credit score drops. Credit cards are usually at risk of being shut down after 12 months of inactivity, but they can also take a few months, making them difficult to predict. Here’s what you can do to avoid a surprise in advance 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 2009 states that creditors must give borrowers 45 days’ notice of significant changes in the terms of their accounts, but the courts have subsequently ruled that the cancellation of the credit card does not apply. credit card for inactivity. This is not to say that banks will not notify you within 30 days (some state laws do require it), it is simply not guaranteed.
Also seconds Forbes, as banks lose up to $ 100 a year for inactive card, they are encouraged to close accounts. This could explain why the acceptable range of inactivity varies from a few months to a few years, although it is usually a year (if your card has an annual fee, a card without commissions is less likely to close).
That said, if you’re not clear about your card’s policy, your card’s terms and conditions agreement should contain information about how you manage inactive accounts.
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Why is it important?
Having an unexpectedly closed credit card can cause serious damage to your credit score, sometimes at the worst possible time, such as when you are about to apply for a loan. This is because 55% of your credit score is based on the amount of unused credit you have available, the average age of your lines of credit, and the combination of credit you have (e.g., mortgages). , car loans, credit cards). If you suddenly lose a card, these categories will be affected. Some research suggests that, at least anecdotally, a closed credit card may reduce your credit score by approximately 100 points.
What is the best way to avoid an inactive card?
The obvious answer is to use each of your credit cards during a purchase at least every few months, although unless you have an idea, it can be easy to forget, especially if you don’t carry all of them.
Instead, a simpler approach to defining and forgetting is to schedule the card to pay for a recurring, low-cost subscription you already have. If it’s an infrequent subscription (e.g. 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 have also set up my card so that my checking account automatically pays the balance each month, in case I forget the card exists (since it is buried in a drawer somewhere).
In doing so, I am only using my oldest credit card (over ten years) for credit history and, to a lesser extent, for additional overall credit, solely to keep my credit score high. And it works.