Credit cards are now tailored for diverse needs—fuel, movies, shopping, or travel! But what happens when you stop using one for a long time? Let’s dive into Dormant Credit Card Accounts, their pros, cons, and impact on your credit score.
1. What is a Dormant Account?
- A credit card account becomes dormant if unused for 6+ months.
- Banks may block such cards for transactions like purchases or cash withdrawals.
- Reactivation is often possible, but policies vary by bank.
Why might a card go dormant?
- Preferring another card.
- Forgetting about it.
- Purpose-specific card (e.g., travel) is unused due to changes in lifestyle.
2. Pros of Dormant Credit Cards
- Control Spending: Not using the card reduces the temptation for unnecessary purchases.
- Maintains Credit History: Keeping the account open can help with overall credit history length.
- No Transaction Fees: You avoid fees tied to transactions when it’s inactive.
3. Cons of Dormant Credit Cards
- Credit Score Impact: Inactivity may harm your credit score, especially if the account is eventually closed.
- Account Closure Risk: Prolonged inactivity might lead to bank-initiated closure.
- Inactivity Fees: Some banks may charge fees after extended inactivity.
4. Should You Deactivate Dormant Cards?
Yes, if:
- You don’t plan to use the card in the future.
- It comes with high annual fees or inactivity penalties.
- Other active cards provide better benefits.
No, if:
- It helps maintain a low credit utilization ratio.
- It contributes positively to your credit history.
5. Impact of Dormant Accounts on Credit Scores
- Utilization Ratio: Dormant cards help keep your utilization ratio low, which is good for your credit score.
- Closure Consequences: If the bank closes the dormant account, your total available credit reduces, increasing your utilization ratio, and possibly lowering your score.
6. Can You Reactivate a Dormant Credit Card?
- Yes, most banks allow reactivation!
- Steps:
- Use the card for a small transaction.
- Visit your bank branch to request reactivation.
- Update personal and contact information, if needed.
Always check the bank’s terms and conditions before proceeding.
Key Takeaway:
Unused cards can both benefit and harm your financial profile. Monitor your cards regularly, deactivate those you no longer need, and stay informed about your bank’s policies.