What defines a dormant credit card account?

A credit card account is considered dormant if there have been no purchases, balance transfers, or cash withdrawals for a set period of time. The inactivity period differs from issuer to issuer; while some classify an account as inactive after six months, others may consider it after a year. Generally, credit card companies notify cardholders before an account is deactivated, so that they have an opportunity to keep the account alive.

“It is a common misconception that inactive credit cards hurt your credit score. They don’t directly. However, they do factor into your credit utilisation. Closing them can sometimes decrease your available credit, which can then negatively impact your score if you are carrying balances on other cards. So, the impact is indirect, and careful consideration is key before closing inactive cards,” said Prashant Kumar, CEO at Kredit.pe.

Can a credit card be canceled because of inactivity?

A credit card may be closed due to inactivity. For Instances, if your card remains unused for a couple of months or years, your issuer may close your account. This action can affect your credit utilization ratio, which makes up 30% of your credit score. Because a closed account doesn't contribute to your total available credit, once it is closed, your rate goes up, potentially dropping your scores as a result.

Effective management of dormant credit cards

Instead of an all-or-nothing approach, experts recommend strategically managing inactive accounts according to your overall financial circumstances.

High annual fees: Think about closing inactive cards with high annual fees, but only after opening a new no-fee card to preserve your available credit.

Multiple unused cards: If you have several dormant accounts, focus on keeping those with the longest history and highest limits, while strategically closing newer, lower-limit cards.

Simplifying financial management: If managing multiple accounts becomes too challenging, consolidating to fewer cards might be worth the short-term impact on your credit score.