How Does Credit Card Inactivity Impact Your Credit Score?

Having a credit card can help you boost your credit score by improving your credit utilization, increasing your credit history, and diversifying your credit mix. But what happens if your credit card is collecting dust? Can inactive credit cards impact your credit score?

Credit card inactivity is when you stop making purchases with your card for prolonged periods of time. You might stop using a card because it doesn’t offer rewards, it has a high interest rate, or it’s just used for emergencies. 

When left alone, an inactive credit card can still help you increase your credit score. Even when sitting in your desk drawer, unused credit cards can increase your credit utilization, age your credit history, and expand your mix of credit products listed on your credit report. 

However, an inactive credit card could be cancelled by your provider after a certain period of time. An inactive credit card that’s been cancelled could hurt your credit score by impacting your credit utilization rate, your credit history, and your credit mix. 

How can Cancelled Credit Accounts from Inactivity Impact Your Credit Score? 

There are five main factors that influence your credit score. When a credit card is cancelled due to inactivity, it impacts three factors that make up your credit score:

• Your credit utilization rate, which makes up 30% of your credit score

• Your credit history, which makes up 15% of your credit score

• Your credit mix, which makes up 10% of your credit score

Here’s how a cancelled credit account could impact these factors and your credit score overall.

Your Credit Utilization Ratio Could Suddenly Increase 

Your credit utilization ratio is the amount of credit you’re using versus the total amount of credit available to you. For example, let’s say you have $30,000 available to you from credit cards, lines of credit, and other products. If you’ve used $9,000 of that total amount, your credit utilization rate would be 30%. As a rule of thumb, you should always aim to use 30% or less of the total amount of credit that’s available to you. A Borrowell study in 2021 found that the average credit utilization rate in Canada is 43.5%

So what happens if your inactive credit card gets cancelled? If a lender decides to cancel your unused card, you lose the credit that was available from that card. Your overall credit limit decreases, which will cause your credit utilization to rise. If your credit utilization ratio suddenly rises above 30%, your credit score will be negatively impacted. 

Let’s look again at the example above. If you have $30,000 of credit available and have spent $9,000, your credit utilization would be 30%. But if your unused credit card with a credit limit of $10,000 gets cancelled, you only have $20,000 of available credit left with the same $9,000 balance. This increases your credit utilization to 45%. 

A sudden spike in your credit utilization rate can definitely hurt your credit score. Your credit utilization rate accounts for 30% of your credit score. This is one reason why you should make sure that your inactive credit cards haven’t been cancelled completely. 

On the other hand, increasing your credit limit can help you decrease your overall credit utilization rate, and it can potentially improve your credit score. You can try doing this by requesting a credit limit increase from your lender, or by opening a new credit card and spending minimally on it per month.

Your Credit History Shrinks

Your credit history shows lenders how long you’ve had credit accounts open, the age of your oldest open credit account, and the average age of all of your credit accounts combined. Your credit history accounts for 15% of your credit score. 

Lenders look at your credit history to determine whether you can responsibly manage your finances. If your inactive credit card gets cancelled by your provider, it will bring down the average age of your open credit accounts and could negatively impact your credit score. If your cancelled credit card was your oldest credit account, it could have a substantial impact on your credit score. 

Cancelled credit cards are listed as closed on your credit report. Closed accounts will still appear on your credit report for up to 10 years, but they don’t benefit your credit score as much as open accounts.

Your Credit Mix Gets Reduced

Your credit mix is the collection of credit accounts listed on your credit report. These credit accounts could include credit cards, student loans, car loans, and mortgages. Your credit mix is one of the factors that credit bureaus use to calculate credit scores. Overall, your credit mix accounts for about 10% of your credit score.

If your inactive credit card gets cancelled, the account will be listed on your credit report as closed. Your overall credit mix will shrink, which can negatively impact your credit score. If you only have one credit card and it gets cancelled, it could have a larger effect on your credit score. 

Your credit mix isn’t the largest factor that impacts your credit score, but having a variety of credit accounts open can be beneficial when managed responsibly. Lenders like seeing a mix of different products on your credit report, as it shows them you’re financially responsible. Lenders will be more willing to approve your future credit applications if you’ve demonstrated that you can manage credit responsibly. Because of this, it might be worth keeping your unused credit cards active to ensure that they don’t get unexpectedly cancelled.

Why do Credit Card Providers Cancel Inactive Credit Cards? 

Your credit card provider may decide to cancel your inactive credit card because they’re not making any money off of it. Providers earn interest from the purchases you make with your credit card. If you’re not using your credit card, they may decide to provide that credit to somebody else.

Credit card issuers are not required to notify you before cancelling your inactive card. You might be surprised the next time you dust off an old credit card and try to buy takeout! If your credit card has been cancelled due to inactivity, you should try contacting your provider to reopen it as soon as possible. It never hurts to ask! A cancelled credit card could hurt your credit score, so you should see what options you have to reopen to your credit account. 

How to Keep Your Credit Card Accounts Active with Minimal Effort 

Is something holding you back from using that inactive credit card? Maybe you don’t like the interest rate, or maybe it doesn’t give you any rewards. Perhaps you’re worried that you’ll miss your payments. 

You might be hesitant about using an old credit card, but keeping an old card active can help you boost your credit score and avoid an unexpected cancellation by your lender. Luckily, there are ways to keep an unused credit card account active with minimal effort so that you can avoid hurting your credit score. 

Make Small Purchases 

One way to keep an old credit card active is to make small purchases with it. Do you treat yourself to a fancy coffee every so often? Consider treating your credit score as well by using your inactive credit card! It’s a small purchase that you can likely repay and will help you keep your account open. Find a small purchase that you are comfortable making every few months and pay it off right away. 

Enable Auto-Pay

Another great way to keep an inactive credit card open is to set it as the automatic payment method for one of your existing expenses. Subscribed to Netflix? Pay monthly car insurance premiums? Pick something that you already pay for and set up auto-pay with your unused credit card. If you pay that bill in full and on time already, you should be able to afford it with your old credit card. Your card could collect dust in your desk drawer and still be useful! Just make sure you pay off your credit card balance each month to avoid fees.   

Use It For One Specific Expense

If you’re nervous about making small purchases or enabling auto-pay with your inactive credit card, try finding one specific expense that you can’t avoid to use your card on. Do you drive a car? You’ll need to buy gas or charge it at a station eventually. Do you take transit? You’ll need to buy tokens or your monthly pass at some point. Use your unused credit card as your primary card for a frequent type of purchase that always comes up.

Avoid Unexpected Cancellations From Inactive Credit Cards 

When used responsibly, a credit card can help you increase your credit score, even if you’re not using it much. Inactive credit cards don’t necessarily hurt your credit score, but an unused card could suddenly get cancelled by your credit card provider and you might not even notice. When your unused credit card gets cancelled, it could have a negative impact on your credit score.

If you have an inactive credit card lying around, you think about what you really want to do with it. If it has high annual fees or interest, it may not be worth keeping open. You may be able to work with your credit card provider and downgrade your card. If it’s your oldest credit card, you should keep it active by making small purchases with it or setting it up on auto-pay. This can help you keep your credit utilization, your credit history long, and your credit mix diverse, which all helps you maintain a strong credit score. Whatever end up doing with your inactive credit card, you’re now aware of how it can impact your overall credit score.