I Haven’t Used My Credit Card In Years, Why Isn’t It Closed?

Your credit card is not automatically closed, even if it hasn’t been used for a few years.  Credit card companies really want your business, so they don’t usually close the account unless you can’t pay or are very behind on payments.  If you don’t owe anything on the credit card or haven’t charged on your card within two or three years, your account may be placed in an “inactive status”.   When you try to use the account, you may have to verify information to activate the account again.  This is for the protection of both you and the card issuer.  Some credit card companies have a policy of closing credit card accounts after three or more years of inactivity.

Closed account impact on credit

If you want to close your account, you have to contact the credit card company to do so.  A closed account still remains on your credit report and is considered a part of your credit history which indicates how well you have paid your bills in the past.  A current or active credit card contributes to the amount you owe, which represents 30 percent of your score.  The ratio of the amount you owe on your credit cards compared to the total credit limit or your credit utilization is considered in the score.

Even if you don’t want to use the credit card anymore, you need to consider the impact on your credit.  If this card has a high credit limit and you close it, it will have a negative impact on your score.  The goal is to have the ratio of your balances to credit limits below 15 percent.  By closing the account, you could increase the proportion of your available credit you are using. For example, you owe $10,000 on three credit cards and the credit limit or the maximum amount you can charge on all three is $50,000. You have used 20 percent of your available credit ($10,000/$50,000=.2 x 100 is 20%).  If you close one credit card with a credit limit of $10,000, you have now lowered your available credit to $40,000 ($50,000 – $10,000).  You have used 25 percent of your credit limit now based on owing $10,000 with $40,000 credit limit ($10,000/$40,000=.25 x100 is 25%).

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It is better for your credit to keep the card open and use it every six months to keep it active. Only charge a small amount and pay it off in full as soon as the bill arrives.  This keeps the amount of credit used low and keeps your credit score high.

JRU on 60 Mins SetCredit Reporting Expert, John Ulzheimer, is the President of Consumer Education at SmartCredit.com, the credit blogger for Mint.com, and a Contributor for the National Foundation for Credit Counseling.  He is an expert on credit reporting, credit scoring and identity theft. Formerly of FICO, Equifax and Credit.com, John is the only recognized credit expert who actually comes from the credit industry.  Follow him on Twitter here.