Credit cards can be handy financial tools that build your credit score and tide you over in emergencies. But as life changes, so do your credit needs.
From finding better rewards to snagging a sweet zero-percent interest rate on a balance transfer deal, you may get a new card for several reasons.
But what happens to your old cards, the ones you pay off and toss in your junk drawer? Those inactive cards could actually ding your credit, a problem that no one needs, especially Black women. Our credit scores are already strained by higher student debt loads and pervasive labor market discrimination. We need our credit lines to work for us, not against us. Luckily, we can act to limit negative impact.
What Happens to Inactive Credit Cards?
Unfortunately, credit cards can’t hang in the background forever, idly boosting your credit score without ever leaving your wallet. After a long enough period of inactivity, the issuer will eventually cancel your card. The exact time frame can vary from six months to a year or more — but it will close eventually.
Why Do Issuers Cancel Accounts?
When credit accounts remain idle, issuers can’t profit off your account. At the same time, credit issuers can only extend so much borrowing power at once. As such, if your card stays in a drawer long enough, your issuer may cancel your account to issue new credit to a customer who will use it.
Do Lenders Have to Tell You They’re Closing Your Account?
The Credit CARD Act of 2009 requires lenders to give customers at least 45 days’ notice about major account changes. However, courts have since decided that cancellations resulting from customer inactivity don’t count. Translation: Lenders don’t have to inform you that they’re closing your card, and they often don’t.
How Does a Closed Account Impact Your Credit Score?
Your credit score is comprised of multiple, unequally weighted components. Depending on your credit history, a closed account may impact the following three:
- Your credit utilization ratio. Your utilization ratio measures the credit you use versus the credit you have available. (For instance, if you have a $1,000 credit limit and you spend $500, your utilization ratio is 50 percent.) Closing a credit account lowers your credit limit, which automatically raises your utilization and can lower your score.
- Your credit mix. Creditors like to see that you can handle several types of credit responsibly, such as your mortgage and credit cards. If you only have a few cards, one closure may drop your score.
- The average age of your accounts. If a card issuer closes an older card, the average age of your accounts will go down. However, accounts in good standing remain on your credit report for up to 10 years.
What Should You Do if Your Account Is Closed?
If you notice an account has been closed, it’s time to act — fast. Some issuers will reinstate your original card within a few days of closing if you ask. Others may require you to apply for a new line of credit entirely. (Note that you may be subject to a credit check either way.)
But that’s not your only option. You can protect your credit score by:
- Paying off some existing debt
- Requesting a credit limit increase
- Becoming a joint holder on the account of your spouse or another family member
You should also check your credit report to ensure any changes are reflected accurately. You can get a free copy from all three major credit bureaus once per year at AnnualCreditReport.com.
How to Keep Your Accounts Open Responsibly
It’s an unfortunate reality that our community faces an uphill battle regarding credit. We’re more likely to be affected by the “credit gap,” because credit score criteria reinforces existing biases (e.g., excluding on-time rent payments despite the lowest rate of Black homeownership since the 1960s).
At the same time, we’re less likely to own credit cards, which can make it difficult to build credit responsibly. Thus, an unanticipated account closure can be a real headache.
But if you have a credit card and want to keep it active — and your score high — you can take some simple steps. To start, you can throw a recurring charge, like a streaming subscription or your phone bill, on an otherwise inactive card. Then, use your bank’s autopay function to pay it off in full monthly. Alternatively, you can make it your primary card for small, frequent purchases, such as your daily coffee run.
Remember, every time you use credit responsibly, you lay another stone in your financial foundation. Keep on top of your accounts, and don’t let your junk drawer stand between you and credit excellence.