Inactive credit cards: Risks, impact on credit score & tips to manage them

'It is a misconception that inactive credit cards hurt your credit score. They do not directly'

Some of us hold multiple credit cards, but use only one or two regularly.

 

What is a dormant credit card account?

 

A credit card account is considered dormant when it has not been used for purchases, balance transfers, or cash withdrawals for a certain period. The timeframe for inactivity varies by issuer-- some may mark an account as inactive after six months, while others may wait up to a year. Generally, credit card companies notify cardholders before deactivating an inactive account, allowing them the opportunity to keep it active.

 

“It is a common misconception that inactive credit cards hurt your credit score. They don’t directly. However, they do factor into your credit utilisation. Closing them can sometimes decrease your available credit, which can then negatively impact your score if you are carrying balances on other cards. So, the impact is indirect, and careful consideration is key before closing inactive cards,” said Prashant Kumar, CEO at Kredit.pe.

 

Can a credit card be closed due to inactivity?

 

A credit card can be closed due to inactivity. If your card remains unused for an extended period—whether months or years—the issuer may choose to close your account. This closure can negatively impact your credit utilisation ratio, which makes up 30 per cent of your credit score. Since a closed account is no longer factored into your available credit, your utilisation rate increases, potentially lowering your credit score.

 

Strategic management of dormant cards

 

Rather than taking an all-or-nothing approach, experts suggest strategically managing inactive accounts based on your overall financial situation

 

High annual fees: Consider closing inactive cards with high annual fees, but only after opening a new no-fee card to maintain your available credit. 

Multiple unused cards: If you have several dormant accounts, consider keeping those with the longest history and highest limits while strategically closing newer, low-limit cards.

 

Simplifying financial management: If tracking multiple accounts becomes overwhelming, consolidating to fewer cards may be worth a temporary score impact.