Because credit card companies are not required to give you any warnings, it can come out of nowhere – your credit card is suddenly closed due to inactivity and your credit score drops. Generally, you risk closing your credit card after 12 months of inactivity, but it can be several months, so it’s hard to predict. Here’s what you can do to prevent a surprise in advance without thinking too much about it.
Why don’t credit card companies warn you?
He doesn’t have to. According to Forbes, The Credit Card Act of 2009 states that lenders must notify lenders with 45 days’ notice of major changes to the terms of their accounts, but the courts later ruled that credit card cancellation due to inactivity does not apply. This does not mean that banks will not notify you in 30 days (some state laws do is not guaranteed.
Also compliant Forbes, as banks lose up to $ 100 a year for each inactive card, they are encouraged to close their accounts. This could explain why the range of acceptable inactivity varies from a few months to a few years, although it is usually a year (if your card has an annual fee, it is less likely to be closed than a fee-free card).
That being said, if you’re not clear about your card’s policy, your agreement to your card’s terms and conditions should contain some information about how you handle inactive accounts.
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Why does it matter?
If you have an unexpectedly closed credit card, you can do some 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 how much unused credit you have available, the average age of your credit lines, and your credit mix (e.g., mortgages, car loans, cards). credit). If you suddenly lose a card, those categories are affected. Some research suggests that, at least anecdotally speaking, a closed credit card can reduce your credit score by about 100 points.
What is 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’re the subject, it can be easy to forget – especially if you don’t carry all the cards.
Instead, a simpler “set and forget” approach is to schedule your card so that it pays for a cheap, recurring subscription you already have. If it’s a rare subscription – say, every three or six months – even better. In my case, I use an old card to automatically pay for the 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 (because it’s buried somewhere in a drawer).
In doing so, I do use my oldest credit card (over ten years old) for my credit history and, to a lesser extent, for my overall credit, in order to keep my credit score high. And it works.