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A few days ago I wrote about the 21 credit cards that I have right now. There are different reasons that I have these cards.
Some cards, like the Chase Sapphire Reserve® and Ink Business Cash℠ Credit Card, are worth having for the excellent bonus categories they offer for everyday spend. Other cards, like The World of Hyatt Credit Card, IHG® Rewards Club Premier Credit Card, and Marriott Rewards® Premier Plus Credit Card, are worth having for the anniversary free night certificates that they offer, which more than justify the annual fees.
One question I’m often asked is if credit card issuers close card accounts due to inactivity. In other words, could your card be canceled if you don’t put any spend on it?
Why banks may want to cancel inactive credit cards
Credit card issuers take on a risk when they issue you credit. The way they make money is with annual fees, merchants fees (when you buy stuff with your card), and interest charges (which don’t apply if you pay off your balance in full every month).
Ultimately there’s an opportunity cost for card issuers to giving you credit that you’re not utilizing, since they could otherwise be extending that credit to someone who is more likely to spend money on the card. In theory it’s not unreasonable for a card issuer to want to close your account if you don’t show any activity on a card, especially if it’s a no annual fee card, where there’s limited upside for them (it’s very rare for them to close a card with an annual fee due to inactivity).
Why you want credit cards open (even if you’re not spending on them)
As I hinted at above, there are several reasons it could make sense to have a card open, even if you don’t spend much money on it. Some cards are worth having for the perks that they offer, which more than justify the annual fee.
In other cases, having cards open can actually help your credit score. Your credit score is made up of the following factors:
- 35% of your score is your payment history (the percentage of payments you’ve made on-time)
- 30% of your score is your credit utilization (how much credit you’re using compared to your total limits)
- 15% of your score is your credit age (the average age of your open accounts)
- 10% of your score is the types of credit you use (how many different types of requests for credit you have)
- 10% of your score is your requests for new credit (how many times you’ve applied for credit)
So at least 45% of your credit score (and possibly much more) is positively impacted by having more cards open for a long period of time.
30% of your score is your credit utilization, which measures the total amount of available credit that you’re using. If you have a card with a credit line that you’re not using, then that contributes positively to your credit score, since it lowers your overall credit utilization.
Furthermore, 15% of your score is your average credit age, so having some cards open long term contributes positively to that metric.
My experience having cards closed due to a lack of activity
Knock on wood, but I’ve never had a card closed due to inactivity. Ever. And there are some cards I just don’t spend money on. For example, I’ve had the Alaska Airlines Visa Card for years, since it has a $75 annual fee and offers an annual companion certificate that I find to be more than worthwhile. It has been years since I’ve spent money on the card, but my account is still open.
So maybe I’ve just been lucky, but I’ve never faced this issue.
Based on looking at data points online, it appears that when this does happen, it’s more common from Capital One and US Bank, and less common from American Express, Chase, and Citi. Furthermore, it seems most common when there’s no activity on a card for at least 12 months.
Also keep in mind that the issuer may consider your overall relationship with them when deciding whether to shut down a card. In other words, if you have five cards with an issuer and use four regularly, they’d probably be less likely to close down the fifth than if you just have one card and never have any activity on it.
So maybe I’m lucky that I’ve never faced this issue, but that’s my experience.
Making small purchases could prevent cards being closed
If you are someone who is concerned about your card being closed due to inactivity, the easiest way to prevent the possibility of this is to just make a few small charged every few billing cycles. Card issuers are unlikely to close a card account if it has activity on it, and the opportunity cost of putting some small purchases on a card every month or so shouldn’t be huge.
Personally I’ve never had issues with a card account being closed due to lack of activity. However, it is something I’ve heard of happening occasionally. If this is something you worry about and want to prevent, I recommend using a card for a couple of small purchases every few billing cycles to keep it active.
Has anyone ever had a card closed due to lack of activity? What were the circumstances?