Should You Ever Let a Credit Card Sit Dormant?
Over time, our spending habits, budgets, and financial needs change. This means that the type of credit card we need may also change.
As a result, the credit card that you carried two, five, or even fifteen years ago may not be the right product for you. Instead, you probably now have an excellent rewards-based credit card that earns you optimal cash back on the things you do spend money on. It may even offer other excellent perks, like travel protections or airport lounge access, making it even more lucrative.
So, what should you do with the card that you no longer need? Should you just let the card sit unused in your wallet? Is there anything wrong with a dormant credit card account?
While there is a good reason to avoid closing the account just because you don’t use it, there are actually a number of reasons to never let a card sit dormant. Let’s take a look at each.
You Take a Hit By Closing It
When you cancel a credit card, regardless of the length of the history or the reason for closing the account, your credit will take a hit. The hit is both immediate and in the future; depending on your score and your financial plans in the coming years, you might want to avoid this.
Immediately after cancelling a credit card, your credit utilization will take a hit. This is because the available credit that you held on that account drops to $0, and any balances that you do carry elsewhere will have a bigger impact on your utilization ratio. This is even true if you pay off your statement balances in full each month; if your lenders report your statement closing balance, it will factor into your credit utilization for that month and, in turn, your overall credit score.
After about seven years, this account will have another impact on your credit score, via your average age of accounts. This account length average will automatically drop when your now-closed account falls off your report; this wouldn’t happen if the account were allowed to stay open.
Even with those factors considered, keeping the account open and inactive still might not be the best choice, though.
You Could Miss Fraudulent Charges
If your account is left open and unused, you probably aren’t checking it religiously (if at all). This might free up some time in your schedule, but it also leaves you open to potential fraud. And you might not even notice it for a while.
I’ve personally left accounts dormant for years, only checking them every six months or so. Had someone hacked my account somehow and run up charges, I may not have even noticed until the damage was done. I could have very well accumulated late fees and even damaged my credit score due to an unpaid statement, all because I didn’t continue to monitor my unused account.
If you’re going to allow a card to lie dormant, ensure that you are still in the loop with its activity (or, hopefully, inactivity). Make sure that you’re getting paper statements, if those catch your eye most, and that you still log in to check the account monthly.
You Risk Paying an Annual Fee
The credit card that I opened when I turned 18 was honestly an awful card. It had a high interest rate, no benefits or perks, and the customer service was atrocious. But I held on to it until I was 30, only closing it after they changed the terms and charged me an annual fee.
If you keep an old card open and unused, you may encounter the same issue. Card products change all the time, and if you’re not actively using and monitoring the account, you might not even know about the changes to come. In my case, the new annual fee was mentioned in my monthly card statement; since I only opened it to see my $0 balance and then shred the rest of the paperwork, I didn’t even catch this fee notice.
I only noticed the fee when a few months later, my statement arrived with a $59 balance, for the new annual fee. At that point, I was forced to close the account (they refused to waive it for me), but it could have been a lot messier. I could have failed to even notice this fee and had it auto-drafted, or I could have inadvertently had a late payment as a result.
If you choose to keep a dormant card, be sure to keep up to date. Read your statements and emails in full, even if you think it’s the same old thing. And remember: it’s almost never worth carrying an annual fee card that you don’t use.
Risk the account being closed
Some lenders don’t like dormant accounts, especially in the retail card space. They want customers who are spending money, racking up finance charges, and being an active buyer. As a result, your account might be automatically closed if you allow it to go dormant too long.
I’ve personally only had this happen with retail credit cards, but it can theoretically happen with any account. If you want to mitigate this risk, charge one small item on the account every six months or less, then pay it off immediately. You will maintain “active” status and avoid having your account forcibly closed without your knowledge.
Inactive credit cards aren’t ideal, but they often serve an important purpose. Just be sure to stay on top of the account, avoid fees and force closures, and reevaluate their impact on your credit score regularly.