What Happens When You Stop Using Your Credit Cards?

Stop Using CardsHave you ever stopped using a credit card for an extended period of time? What happened? Did the card company close down your account? Did they lower or raise your spending limit? Visit the comments below and let me know. Here’s how I stumbled upon this question…

A reader recently emailed me with a question about maxing out reward points from credit cards. His current method involved using around 5 cards, each providing big cash back (3% to 5%) in certain spending categories, to maximize the amount of reward points he earned for his spending. By the way, he always pays each bill in full each month. He was questioning whether to continue in this method, or drop down to only one card, a new one, the “PT’s Pick” on my list of the best cash back credit cards. With his level of spending it could end up meaning significantly more reward points by the end of the year.

But he was concerned that he would need to continue to use his other cards to keep them active. I quickly recalled my own personal use with the Chase Freedom credit card. It’s a card that I applied for around the time I got married (2006). I used this card initially, but did not use it again till just last year (2010). The card was never cancelled, nor had my credit line been touched. So based on my own experience, I assumed cards that had once been used could live on for a while without being used. But, after some Googling, I know this does happen. I decided to call Chase and have this conversation about the life of credit card accounts with them. Here’s how it went:

PT: If I were to stop using my card, when would you close the account?
Chase Rep: We take a look at cards after two years of inactivity and make a decision to close the account or keep it open.

PT: What factors help you make the decision?
Chase Rep: It’s really case by case, but we consider how the card has been used in the past.

PT: Does credit score factor into the decision?
Chase Rep: Yes, we always have the latest credit file on record for our card holders so we use all the information available to help make the decision.

PT: What about new cards that were never used? Or even never activated?
Chase Rep: The “activation” has no bearing on the account status. Once you are accepted and get the card, you have an active credit card account. The use of the card is what determines whether we keep your account open or not. If you don’t use a new card, we shut it down in 90 days.

PT: Is any of this industry standard, outside of Chase?
Chase Rep: The 90 day rule, I believe, is a part of the new credit card legislation. But the two year rule is ours, but likely close to what other banks use.

I followed up online and could not locate information on the 90 day rule. If you know about it, please chime in below. So it looks like the credit card companies will possibly close your account. My advice, if you are considering inactivity, is to call your card company and ask them what their standard is.

Other factors to consider when dealing with card you no longer use:

  • If it’s an older card, consider taking steps to keep it active, as it adds to the length of credit history you have on file. Have a recurring bill (i.e. cell phone) that you can put on the card? Set it up, and set up the automatic payment to the credit card.
  • If it’s a card with an annual fee, consider dumping it all together. I suspect cards with fees aren’t shut down so quickly.

What’s your story with old, unused credit cards? Ever had an account closed?

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Last Edited: May 13, 2013 @ 3:53 pm
About Philip Taylor

Philip Taylor, aka "PT", is a husband and father of two. He created PT Money back in 2007 to share his thoughts on money and to meet others passionate about managing their finances. All the content on this blog is original, and created or edited by PT. Read more about Philip Taylor, and be sure to connect with him on Twitter, Facebook, or view the Philip Taylor+ Google profile.

8 comments
Credit Rating Scores
Credit Rating Scores

Can I just say what a relief to find a person that truly understands what they're discussing on the internet. You definitely understand how to bring a problem to light and make it important. A lot more people need to read this and understand this side of your story.

Pooja.G
Pooja.G

@Janet: I believe what you may be referring to as "small interest payments" is what they call Residual Interest Charge.
When you have a revolving balance on your credit card, that is, if you have a balance carrying forward from month to month, then you lose the so-called "interest-free period" or "grace period." You start accruing interest on EVERY DAY THAT YOU HAVE A BALANCE ON YOUR CREDIT CARD. Say, for example, your statement starts on Jan 1 and closes on Jan 31. If you pay off your credit card IN FULL on Jan 10, then you will be charged interest for the balance you have on your credit card from Jan 1 to Jan 10. This is called the residual interest charge. Why this confuses most customers is because the interest is calculated at the end of the cycle -- on Jan 31. Between Jan 11 to Jan 30, their outstanding balance on their credit cards remains 0. So customers assume that they no longer have to make any more payments.
The way I remember this is by comparing that to the rent of an apartment. If you are supposed to live in an apt from Jan 1 to Jan 31, but move out on Jan 10, then you have to pay a pro-rated rent for those 10 days. So the interest charge you see after completely paying of a credit card is the pro-rated rent for keeping your balance in your credit card company's apartment from the day your account cycled to the day you made your payment. Hopefully this makes sense :)
The residual interest charge does not exist for credit card accounts that are paid in full each month. So if you pay off your full statement balance each month, then the interest-free period or grace period remains. But as soon as you are late by even one day or make a payment even $1 short of your full statement balance, your interest-free period expires and you immediately begin to accrue interest on every day that you carry a balance on your credit card.

@PT: Closing a new inactive credit card within 90 days of opening does sound very familiar, I have to reconfirm if that is spelled out in the CARD Act or not. However, I do know that if a customer closes a card within 90 days of opening it, then the inquiry from their credit report is removed. Its as though they never applied for that credit card. Just FYI, in case it helps anybody :)

PT
PT

@SuperT - You are quite welcome. That's a great card history you have. I'm jealous! Good luck setting up the charge. Make sure you create that automatic payment too. :)

SuperT
SuperT

Thanks for the idea on setting up a recurring charge. I have a Citi Mastercard that has 'Member Since 91' stamped on it. Damn, that just proves I'm old. Back when Will Smith was still the Fresh Prince, I probably had to fill out a paper application and put it in the mail to get this thing!

I use the old MC maybe once a year to secure a hotel reservation if I stay some place that doesn't take Discover, but I don't have any real idea how long I go between uses. I would guess I use it once a year and I've never had any risk of cancellation. However in the current economic era they may eventually try to cut off un-profitable customers like myself. At this point, I want to keep it open just for the gee-whiz factor associated with it's age.

I'm going to move a recurring charge to it today. That should keep it active. Thanks!

PT
PT

@Janet - Congrats on paying off the debt! :) What do you mean "small interest payments"? I'm not following you there.

@biddy - Thanks for sharing about the inactivity fee. I guess that is a little way of waking you up and ensuring you still want to be a card holder. Will definitely hug all the PTs.

@evelyn - Thanks for your info. sorry to hear about the LOC being yanked, and still having a fee. very shady indeed.

evelyn
evelyn

I not only had a Chase credit card account closed because of inactivity of two years, but I also had a business line of credit of $40,000 closed by Bank of America, without knowing anything about it. They charged me the $100/year for the account, which I paid for several years. I was considering using the credit line last year, and I called BOFA to find out what the current interest rate was. They told me the account had been closed two years ago! They had no explanation for why it was closed or why I wasn't alerted. Imagine if I had written a large check on that account without knowing it was closed. They did refund me the $200, but I'm sure they would have gladly continued to have taken my money forever and never alerted me that the account was closed. Very shady practice, and the representative was a total jerk on the phone.

biddy
biddy

Hi PT

Great topic.........on CIBC Visa, if there is no purchase every 6 months (can be a little as
$10) a $10 annual fee is charged, so I charge occasionally as with a store card........
these are both paid immediately.
However, what used to be my main card was frozen by the bank as I paid it off. To date,
over 3 years, that is
the status and I have not asked to re-instate this. With all this I still have a great
credit rating.
Hugs to all PT;s

Janet
Janet

Very informative interview, PT. I paid off my plastic entirely (yay!), but I'm still going to use the card lightly for things like groceries and gas and pay it off in full each month. I thought about closing it, but it looks like that's easier said than done. Plus, I noticed I still have small interest payments even though I paid off the balance. Even when you pay off your card, the payments are still hard to shake!