Having a credit card kept away, unused, might easily seem harmless, but it can still have surprising consequences for your credit health. Here’s what credit card holders need to know about inactive credit card accounts:
Dormancy and potential closure: Credit card companies in India can declare your card dormant if it is not used for a certain period of time. Typically, this period ranges from six months to one year. Now, policies might vary, the card issuer will likely notify the credit card holder before deactivating the card. This is done to give the credit card holder a chance to reactivate it. Therefore, it is important to remember that prolonged inactivity can lead to the issuer closing the account.
Impact on credit score: Account closure can negatively impact your credit score. You can check your credit score for free here on Livemint. Now, when an account is closed, it reduces your overall available credit, potentially increasing your credit utilization ratio. It is basically the amount of credit you’re using compared to your total credit limit. Credit utilization generally accounts for 30% of your credit score, so a higher ratio can drag your score down.
Loss of rewards and benefits: Unused cards simply mean missing out on potential rewards, cashback offers, and other benefits like lounge access facility. Rewards earned may even expire if the card remains inactive for too long. This can result in loss of all accumulated rewards, points and offers on a card.
Fees, charges on inactivity: While previously a concern, the good news is that most credit card issuers in India can no longer charge inactivity fees or fines for unused cards. Still, it is better for card holders to talk to the customer service department of their respective credit card issuing company for complete details on the issue.
What can cardholders do about inactive credit cards?
- Use cards periodically: Even a small transaction every few months can keep your card active.
- Monitor your credit card statement and accounts: Regularly check your credit card statement. Also check your online accounts for any changes, unusual activity or notifications from the issuer.
- Contact your bank: If you have a credit card you no longer need, consider closing it promptly. Be careful of the potential impact on your credit score, even more so if it’s one of your oldest accounts or has a high credit limit.
- Revive dormant accounts: If your card has been declared dormant and blocked due to the same, then reach out to your bank to understand the reactivation process. You may need to submit a written request and provide KYC documents.
(Note: Using a credit card carries its own set of risks)