A credit score is a snapshot of your credit history that helps lenders determine creditworthiness— whether or not someone is a good candidate for lines of credit. Credit bureaus generally take five factors from into consideration when calculating a person’s credit score: payment history, amount of debt, length of credit history, account mix and amount of credit inquiries.
Average length of credit history accounts for 15 percent of the credit score. While this factor doesn’t weigh as much as the other factors like payment history and credit utilization ratio, which collectively account for 65 percent of your total score, the length of your credit history can affect your credit score.It refers not only to the length of your credit history but also includes recent activity within the past two years. As a result, if you have inactive credit cards, your credit score may suffer. In fact, credit files can completely disappear when credit card accounts have been inactive for several years.
Below, we explain why and how credit cards become deemed as “inactive” credit cards, how that affects credit scores and how you can avoid problems associated with inactive credit cards.
Inactive credit cards explained
Credit card companies earn revenue from any interest that account holders pay on their balances and from the transaction fees paid by the merchants who accept credit cards. When you go months or years without making charges on your account, the credit card issuer may decide to cancel the account. Closing an unused credit card gives the lender an opportunity to extend credit to another borrow who will make charges and accrue interest. In these cases, closing an account is not a reflection of your worth—it’s just a business decision.
How long it takes for inactive credit card accounts to be closed
Each credit card issuer has its own definition of inactivity and criteria for closing an account. In most cases, inactive credit cards are usually closed after a year or more of inactivity, which is one of the most common reasons for credit card account cancellations.
How inactive credit cards affect the credit score
Inactive credit cards can have a negative impact on your credit score for several reasons.
- Credit utilization ration. Inactive credit cards can impact your credit utilization ration, the amount of credit you are using compared to the total amount of credit available to you. For example, your credit utilization ratio is at 30 percent if you carry a collective balance of $2,100 but have $7,000 in credit available to you. Inactive credit cards drive credit utilization ratio up. Your utilization ratio will significantly increase if a credit card account with a credit line of $3,000 is closed because of inactivity and can negatively impact your credit score.
- Average length of credit history. The length of your credit history accounts for 15 percent of the total credit score and can impact your credit score if your oldest account is canceled due to inactivity, which can also cause trigger an increase in your credit utilization ratio as well.
- Credit invisibility. You can become credit invisible if your accounts are canceled due to inactivity. Being credit invisible essentially means you don’t have a credit score. Other people who are credit invisible include newcomers to the U.S. as well as many young adults. Learn more about the impacts of having no credit here. Being credit invisible can impact on your ability to open new lines of credit in the future.
Avoiding inactive credit cards
One of the best ways to avoid the downsides of inactive credit cards is to ensure that you are actively using your credit card accounts. But take care to use them wisely. Accumulating high balance or incurring late payments can also negatively impact your score.
Here are a few tips that can help you avoid having your credit card accounts closed due to inactivity:
- Make small purchases on a regular basis. Using your cards a few times a month to make minor purchases is enough to maintain the active status of your account.
- Autopay. A great way to ensure that your cards will remain active is to use them for auto payments. For example, you could use a credit card instead of linking your bank account for automatic payments for regular bills like a cell phone. Adopting this strategy can help ensure that your card will be charged each month and still be classified as active.
Keep your cards active, but avoid carrying a large balance or paying your bills late in order to maintain a healthy credit score. For more resources on how to navigate your new life in the U.S., visit Nova Credit’s resource library where you can learn about everything from renting an apartment to finding the best credit cards for noncitizens.