Editorial Policy

Will my credit card be closed because of inactivity?

Eva Norlyk Smith Ph.D.

June 9, 2014

QDear Eva,

I have $2,000 on my credit card that I want to pay off before I use the card again. Will paying down the debt each month qualify as “using” the card, or will my bank cancel my card for inactivity? –Greg

AHi Greg,

Not to worry, paying down your credit card debt each month qualifies as activity. You don't run a risk of getting your card closed just because you don't make charges on it during that time.

Indeed, slowly wiping out that credit card debt will make you a more desirable card customer in the bank's eyes. First, the card issuer is earning interest on your credit card balance, and second, your debt payments establish a track record that shows you can be relied upon to pay off your credit card balances.Ask Eva

When and why do credit card issuers close credit cards? People who don't use their credit card for purchases and don't carry a balance on the card offer little benefit to card issuers, particularly if the card doesn't have an annual fee.

The bank earns money in several ways on the credit cards it issues: via interest payments on credit card balances; and via swipe fees, or the small percentage merchants pay to credit card issuers each time a person uses a credit card. In addition, card issuers earn money on annual fees, late fees, cash advance fees and so on.

When a cardholder doesn't use a card for purchases and doesn't carry a balance, all of that income goes away (unless the card has an annual fee). The card issuer is still stuck with monthly expenses for maintaining the card, including the cost of keeping your account in its systems and paying for the periodic credit reports it pulls on all cardholders. So, in the long run, it makes sense for the issuer to clear its portfolio of inactive credit cards.

When are you at risk for having your credit card closed? It depends on the card issuer. According to reports in online forums, some card issuers, such as Bank of America, may close credit cards after as little as six months of inactivity. Other card issuers, for example Discover, may keep unused accounts open for three years or longer. Cardholders who have a history of missed or late payments may find themselves at higher risk.

A closed credit card can affect your credit score indirectly, so there are many good reasons to ensure it stays open. Even for someone with multiple credit cards, having one card closed can affect your debt-to-limit ratio, which accounts for 30 percent of your credit score.

How? With less credit available, the debt-to-limit ratio will automatically increase, because the proportion of debt in relation to the credit available will rise. The best practice for a good credit score is to keep your debt-to-limit ratio at or under 30 percent. That can be a challenge if you lower your total credit limit available.

In your case, you don't need to worry, but even without a balance, it's not that hard to keep a credit card active. Some people simply make a charge to the card every two to three months and then pay off the balance at the end of the month. Other people prefer to charge one of their regular monthly bills to the card, and set it up for automatic payments from their bank account.

In any event, congratulate yourself for making the decision to take control of your credit card debt and pay off that $2,000 balance. That will benefit your credit score tremendously in the years to come.

Got a question for Eva? Send her an email.