Here’s What Happens If You Never Cancel a Credit Card
Occasionally, you may find that you have a credit card that you no longer use. This often happens after people improve their credit score and get better cards with more benefits. For example, if you have a cashback card, it doesn’t make much sense to continue using an old card that doesn’t earn any rewards.
You can undo the old card, which many people do in this situation. But closing a credit card can impact your credit score, so you might prefer to keep it. What if you just stop using a card without ever canceling it? Let’s review what could happen in this situation.
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What happens if you never cancel a credit card?
If you never cancel an unused credit card, there are two possible outcomes:
- The card issuer cancels the card. Card issuers will usually send advance notification of the pending cancellation. The notification will inform you that if you do not use your credit card by a specific date, it will be cancelled.
- Nothing changes. That’s right. Your credit card might just stay open, despite the lack of activity.
The most likely scenario is that the card issuer notifies you by post or email that they are considering canceling your credit card. If you wish to avoid this, you will need to make a purchase before the date indicated in the notification.
It’s anyone’s guess how long it might take before you receive this type of notification. It can take six months of inactivity, a year or five years. Although card issuers don’t make their timelines public, Wells Fargo has at least provided a general idea of its cancellation policy. A spokesperson told Money that Wells Fargo typically closes credit card accounts after two to three years of inactivity.
But why keep a credit card open if you’re not using it? The main reason is how it can affect your credit score.
How a canceled credit card affects your credit score
A canceled credit card does not directly affect your credit score – you do not lose points because your card was cancelled. But it can influence some of the factors used to calculate your credit score.
The biggest potential problem is how it affects your credit utilization rate. It is one of the most important factors in your credit score. To determine your credit utilization rate, your card balances are divided by your credit limits. Let’s say you have two credit cards:
- Card A has a balance of $5,000 and a credit limit of $10,000.
- Card B has a balance of $0 and a credit limit of $10,000.
Your credit usage would be your balance of $5,000 divided by your combined credit of $20,000. It’s 25%. Conventional wisdom suggests having less than 30% credit utilization, so you’d be fine.
But now let’s say card B is canceled because you never use it. You would lose $10,000 in credit. Your credit usage is now $5,000 divided by $10,000, or 50%. Because that card was canceled, you now have high credit usage which could hurt your credit score.
This is only a problem if you have large balances on your credit cards. If you pay your bill in full, using credit won’t be an issue, even if a card is cancelled.
Another often mentioned disadvantage is that a canceled credit card could reduce the average age of your account. However, this is not as important for two reasons:
- Closed credit cards stay on your credit report for 10 years. During this time, they may continue to positively affect your credit.
- The average age of your account is a minor factor in your credit score. According to the widely used FICO® Score system, it counts for 15%. The use of credit, on the other hand, accounts for 30%.
Keep a credit card open
If you want to make sure a credit card stays open, it’s pretty simple. Use it for an occasional purchase and pay the bill on time. A popular way to do this is to make your card the default payment method on a regular bill you have, like your streaming service account.
Now, is it worth your time and energy? Probably not. Any impact to your credit score from a canceled card is fixable, and it won’t matter much if you’re able to keep your credit usage low.
You better find quality credit cards that you like and will use regularly. Ideally, you will also pay your credit card balance monthly. It’s good for using your credit and you won’t earn any interest on your credit card. Do this and you won’t have to worry about an unused card being voided.
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