Credit cards are one of the most efficient financial products in the market and the demand for it has increased substantially in the past few years. There are different types of credit cards offered by each bank to cater to the different needs of their customers.
As the number of card options has been increasing by the day, it is important that you know exactly what kind of card is best suited for you. There have been many instances where customers often take a credit card and due to various factors, such as the terms and conditions surrounding it along with, annual fees, etc. The card tends to just exist without any activity. These cards are dormant however, your bank might be charging you, nevertheless.
Closing your credit card account
If your credit card has been dormant for a long time, most banks or creditors will close your credit card account. The major reason is that once the account is closed, that line of credit can be given to another customer since you are not using it anyways.
Most banks will let you know in advance that they will be closing your credit card account. There have been some banks who will close your account first and then notify you. However, closing your credit card account will affect your credit score negatively.
It will make sense to cancel the account only if you do not want to use your credit card as you are spending recklessly. Apart from this if you are paying the annual fee for the card even if you aren’t using it, then it is better if the account is canceled.
Inactivity of cards and its effect on your credit score
If your credit cards are inactive, as mentioned before, cancellation of the account is required. However, the age of the card plays a major role in your credit score. Just like ‘Old is Gold’, old credit is the best credit. So, if you hold an old card, it is better not to cancel the account.
Another disadvantage of closing a credit card increases your credit utilization which affects your credit score negatively as the credit limit of that card will not be considered for your credit score.
To neutralize the effect of your high credit utilization, you will have to pay off some of the credit card debt which you have or request the bank for an increase in the credit limit on your other cards.
However, all these factors affect your credit age only after 10 years when the account will be dropped off from your credit report.
What can you do?
It is always better not to cancel your credit card. If you have a card which is being cancelled by the bank due to inactivity, it is advised that you call the customer care of the bank and request them not to.
However, this would mean you will have to make a purchase with that card immediately to deem it active. If you cannot convince the banks to keep the card open, you can request them to transfer the available credit limit to your other credit card. This will help in evening out your credit utilization ratio.
It is advised that you do not keep any of your credit cards dormant for a long period of time even if it is for 6 months. Timely expenses or purchases made at least once a month can prevent you from canceling the card and hampering your credit score.
