Do Credit Card Issuers Close Down Inactive Accounts?

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If you are holding a credit card and you have not used it in a long time, this could be a problem for you. The problem: credit cards can close down because of inactivity. The credit card providers want the cardholders to use their cards so that they can make profits off the fees that they charge from the merchants. If you, as a cardmember, do not use your card, you do not provide the issuer any benefit and there is very little reason to keep your account running and open.

To be on a safer side and to make sure that you do not face the scenario of your card being shut down due to inactivity, it is a good idea to use your card for purchases every few months. There is no industry benchmark for as to how long the period will be before your account closes down because of inactivity, but this could happen within a few months with some of the companies depending on your scenario.

This thread will act as a guide to help you in understanding in a better manner when the cards close down due to inactivity and why the same happens, along with providing you some tips for making sure that this does not happen to you.

When Do Credit Cards Close Down Due To Inactivity?

Unfortunately, it can be quite tough to predict the exact time when a card is likely to be closed down if there is no activity on it. There are no rules laid out that define how long it takes before a credit card provider closes down your card. On top of this, they do not include any sort of such information in the agreement of your card.

Some providers may close the accounts of inactive credit cards after as little as a few months of absolutely no activity while other providers might allow the cardholders to keep the credit cards dormant for as long as a few years before closing down the account – depending on the issuing company’s policies.

If you have had your credit card for a long period of time and have been a good customer to the company, and you have charged a fair amount on your card, you are less likely to face closure of your account quickly because of inactivity than if you are someone who has opened a card account in the recent times and have not used it at all. 

Why Do Credit Card Issuers Close Inactive Card Accounts?

The issuers of credit cards can only extend so much credit. If you are someone who has an open credit card account and you have available credit, this is the same credit that the card provider cannot extend to some other customer.

If you do not use your credit card at all, the credit card company is in a better position in closing down your account so that the credit that is offered to you can be redirected to a cardholder that will actually use it to make purchases with his or her card.

Do Card Providers Give Any Sort Of Warning Before The Closure?

In most events, card providers do not give you any sort of warning before they close down the accounts of inactive credit cards. There is no obligation for your card company to inform you that it is considering closing down your card account if you do not conduct some sort of activity on it.

How Does A Card Closure Due To Inactive Behaviour Affect You?

It can be quite a big problem if your card account is closed down because of inactive usage as the loss of your card will have an impact on your credit utilization ratio.

The credit utilization ratio is one of the major components that come into play while the calculation of your credit score. The credit utilization ratio of an individual is calculated based on the credit you have used versus the credit that is available to you.

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For instance, if you are holding 2 different credit cards with a credit limit of AED 5,000 each, and you have incurred charges worth AED 2,000 on one, whereas you have incurred AED 0 on the other, your credit utilization ratio would be around 20% (AED 2,000/ AED 10,000). However, if your card that holds an AED 0 balance closes down because of lack of activity, you will be in a situation where your available credit is reduced by half and your credit utilization ratio will rise to 40% (AED 2,000/ AED 5,000).

Holding a lower credit utilization ratio is quite a lot better for your credit score as the creditors start to get worried when you have used a lot of the credit that is extended to you. If your ratio crosses the benchmark of 30%, your credit score can end up taking a major hit.

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Unfortunately, if one of your credit cards closes down because of inactivity, your ratio of credit utilization will immediately hike up because of the reduction in the credit that is extended to you. This could end up having an immediate and huge impact on your credit card. This can be hard to recover from unless you will be able to gain access to credit or pay down your debt.

How Can You Avoid Being In Such a Situation?

The bright side to this is that you can very easily avoid having to face closure of your credit card due to inactive behavior. You just have to ensure to use your card. If you are holding other credit cards that you prefer using for your spending, there are some simple ways to do this:

  1. Just make one expenditure in a month using the card that you do not want to go dormant. You can make this a habit by setting it to be your first expenditure of the month so that you do not forget to do so.
  2. You can add this card to anyone of your online shopping accounts. If you are a regular shopper with a particular website every few months, set up your payment mode as the card you do not wish to go dormant. This will ensure that you are using the card on a semi-regular basis.
  3. Set up a recurring expenditure on the card. If you have a monthly bill that does not have a large amount, such as an online streaming video or music service, set the payment method as the card you do not want to go dormant so that there is some charge on it. This way, it will be used reliably every month and you will not have to make any efforts at all.

However, you should remember to pay the outstanding dues on time on the card when you use it – which can be slightly challenging if you do not regularly use the card. To avoid facing an event where you forget to do so, pay off the expenditures incurred right away once they are incurred or set up an automatic payment option for the recurring charge’s amount 

Can You Reopen A Card Account That Is Closed Due To Lack Of Regular Activity?

If your card account has been closed down because of a lack of activity, you can call your credit card provider and ask if they can reopen it. You will most likely have to promise them to make a purchase on the card immediately.

Many of the credit card issuers will reject your request to reopen your card account, so there is no certainty that this will work for you. If the credit card provider doesn’t honor your request to reopen the card account, try to ask if they will allow you to transfer the credit that you had before to a different card. This option is likely to work only if you have another card account with the same provider, but there is still no guarantee of it being allowed – but it will help in at least ensuring that your credit utilization ratio does not hike up.

If your card provider is not willing to help you at all, there is nothing that can be done from your end – you will have to just bear with the consequences of an account closure due to inactivity.

Don’t Let Your Credit Cards Get Closed Down Due To Inactivity

It is a good idea for you to avoid the scenario of your card account getting closed due to inactivity as this can end up hampering your credit score and leaving you with lesser available credit in case of emergencies.

Since different credit card issuers have different policies as to the period before your card can be inactive before your account closes down for the same. It is important to use your card every few months or so to make sure that the account does not get closed without you wanting so.

You can make a small purchase or set up a recurring purchase for the card as it will help you have some activity on the card and will ensure that it does not get closed due to a lack of activity. You can consider these options to keep your card up and running, and you do not have to necessarily hold this card in your wallet.

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