If you have a wallet full of plastic tempting you to spend, you might want to stuff a few of those credit cards into a drawer and stop using them for a while.
Sending a credit card or two to the sidelines can be a smart way to stay out of debt. But leaving a credit card unused for a long period does not come without risks. There are two primary drawbacks to such a move: A lender might close the account, and you may be susceptible to fraud if you aren’t vigilant about checking up on the inactive card.
Overlooking Fraudulent Activity
The most dangerous risk is that failing to use your card might leave you in the dark about fraudulent activity related to the card.
Chris Dlugozima, an education specialist at GreenPath Financial Wellness, says the more cards you hold, the bigger your risk of becoming a target of fraud. “If I have five cards versus one card, there’s a five times greater chance that a particular card could be used [fraudulently].”
Indeed, if you have several credit cards and stop using one or two, it is possible you will quickly forget about the cards, especially if you are not receiving paper statements.
“You get a monthly statement by email, and it goes in your spam folder or it’s buried,” Dlugozima says.
[Read: The Best Cash Back Credit Cards of 2018.]
With the card out of sight and mind, you might not see a fraudulent charge until long after it occurs. “You’re not going to be nearly as likely to stay on top of what’s happening,” he says.
The longer you overlook the card, the more damaging fraudulent activity can become, says Linda Jacob, accredited financial counselor with Consumer Credit of Des Moines in Iowa and author of “No More Paycheck to Paycheck: Stop Living in Debt and Start Living the Dream.”
“If you’re not paying attention, that could go on for months,” Jacob says.
The Danger of Having an Account Closed
The other risk of leaving a card inactive is that your lender might decide to close the account. Lenders choose to close accounts for a variety of reasons, Dlugozima says.
“One possibility could be that if you’re not using an account at all and they don’t know what your income situation is, the lack of information could be considered a risk to them,” he says.
If you decide not to use a card for a long period, it generally will not hurt your credit score. However, if a lender notices that period of inactivity and decides to close the account, it can cause your score to slip. That’s because losing a source of credit affects your credit utilization ratio — a measure of how much credit you use in relation to your total available credit.
[Read: The Best Balance Transfer Credit Cards of 2018.]
Your credit utilization ratio is the second most important factor in calculating your FICO score, the credit score lenders use more than any other. It accounts for 30 percent of your score. Only your payment history, at 35 percent, is more important. The lower your credit utilization ratio is, the higher your credit score is likely to be.
To see how a lender’s decision to close an account can hurt your credit score, imagine you have $10,000 of available credit spread across four credit cards. Each card lets you charge up to $2,500, but you only use three of the cards, leaving the fourth card inactive. If you charge $2,000 in total across all of those cards, your credit utilization ratio is 20 percent — $2,000 worth of charges against a total of $10,000 in available credit.
Now, imagine a lender notices that you are not using the fourth card and decides to close the account due to inactivity. Suddenly, “that line of credit is no longer part of that ratio,” Jacob says.
With the fourth account gone, you now have $2,000 worth of changes against a total of $7,500 in available credit spread across three cards. That puts your credit utilization ratio at nearly 27 percent — dangerously close to the high-water mark for where you want your ratio to be.
“You want to make sure you keep it below 30 percent utilization,” Jacob says. A ratio of 30 percent or higher traditionally has indicated that you might be spending too much and thus hurts your credit score.
How Quickly Will a Lender Close an Inactive Credit Card Account?
There are several other reasons to keep an account open even if you no longer use the card regularly.
For example, some store credit cards might offer benefits at a particular retailer that you consider valuable and worth retaining, even if you do not shop there often.
Dlugozima says you also might want to keep open credit cards that have no annual fee, charge a low interest rate or offer great rewards. But ultimately, the lender has the final say on whether to close an inactive account. There are no hard-and-fast industry rules or standards as to when — or even if — a lender will close your account after a period of inactivity.
[Read: The Best No-Annual-Fee Credit Cards of 2018.]
Dlugozima says he has owned credit cards where the lender shut down the account after just six months or a year of inactivity. “But I had another card that I didn’t use, and they just kept on sending me new cards, kind of begging me to start using them.”
If a lender decides to drop your account, it might send you a letter warning you about the impending closure. While that gives you some time to try to talk the lender into keeping the account open, Jacob cautions that it’s easy to miss such a letter when it arrives in the mail. “Maybe it looks like junk mail,” she says, adding that you might simply mistake the letter for an attempt “to sell you another card.”
So, if you want to keep the account open, it’s best to occasionally use the card. The key is to strike a balance somewhere between using the card too little and using it too much. One way to keep the card modestly active is to make a single, regular charge on the card. For example, Dlugozima suggests using the card to pay a monthly cable or cellphone bill.
“Set up some sort of automated charge on the cards you are not using,” he says. “In essence, what that’s doing is keeping that activity happening.”
Jacob recommends a similar approach to her clients, and says she and her spouse even use this tactic in their own lives. “We have one credit card that we use just for gas.”
A friend of Jacob’s takes this notion even further, using a card just once a year. “He keeps it in his glove box until his birthday dinner,” Jacob says.
Although using the card just once a year sounds like a recipe for having the account closed, Jacob says that in her experience, lenders typically hesitate to close an account.
“They are in no hurry to close that card,” she says. “They are going to leave it open. That’s their business.”
More from U.S. News
How Credit Card Price Protection Works
Proven Strategies for Earning More Credit Card Points
The Best Ways to Build Credit Without a Credit Card
What Happens If You Don’t Use Your Credit Card? originally appeared on usnews.com
