How Inactive Credit Cards Affect Your Credit Score

It is a good idea to save the best credit card spending’s for rainy days. But be careful how you do it. One mishap can cause your finances more harm than good. Two of these mistakes are leaving a credit card dormant or completely unactivated. Doing either of these may seem safe but they can actually harm your credit score significantly.

Your credit card, regardless if it’s active, dormant or inactivated, is still scored like the rest of your cards. For new accounts, credit card providers will report it to credit bureaus 30 days after you receive the card in the mail. And according to this card’s outstanding balance and credit limit, you are scored accordingly.

If your card follows the scoring model of FICO, the factors included would be a credit utilisation ratio, length of credit history and others. With credit utilization ratio, you need to leave at least a 10% gap between your balance and credit limit. This difference earns a high point as it tells the credit bureaus you are not a risk as a borrower.

Now, if you leave your card unused or inactive, what factors will there be to calculate your score? Additionally, if you have a bad credit score or a low one you could’ve increased it significantly. But since you never used the card, you lost that chance to redeem your score. Although, you can try again once you’ve activated your card. However, be sure to use your card wisely. Pay on time and maintain that allowable gap for you to get a high credit score.

However, when your card stays inactive for months, banks have the right to cancel it. Now this is a terrible thing to happen. A sharp closure of your account can also damage your credit utilisation ratio significantly. What will happen is that your balance will remain as is. But this time, your credit limit will drop low. This makes the difference or gap between your balance and credit limit lower.

When credit bureaus see this, you now become a credit risk in their eyes. So the result is a negative score that will drag your entire credit score to the ground. So in order to avoid this catastrophe, never leave your credit card inactive. Once you receive it in the mail, activate it and maintain a balance in it. At least use it once per month and pay it on time. This way your card can contribute to increasing your good credit score, not decreasing it.