Inactive Credit Card:
Credit cards offer a lot of benefits, but many people forget about their unused cards. You can keep a credit card inactive for up to one year, but to maintain a good credit score, it’s important to use it at least once within that period.
What Happens If You Don’t Use Your Credit Card for Over a Year?
If you don’t use your credit card for more than a year, the bank may start the process of closing your account. According to the Reserve Bank of India (RBI), the bank will inform you about this process, and if you don’t respond within 30 days, they will close the account. Any balance left in the card will be transferred to your bank account.
If you want to keep your credit card active, simply make one transaction a year. For example, you could use a travel-focused card during your vacations to earn rewards and keep it active.
Unused credit cards can actually benefit your credit score as long as they are active. A card you don’t use will contribute to a lower credit utilization ratio (CUR), which is good for your score. For instance, if you have two cards with a ₹10 lakh limit each, your total credit is ₹20 lakh. If you use less than 30% of this limit, your CUR stays healthy, even if you spend all the money on one card. However, closing one card reduces your total credit limit, which can harm your CUR and hurt your score.
To keep your credit card from being closed, use it at least once a year. Avoid using your card only for fees or interest payments, as those don’t count as valid transactions. You can also use it for small, everyday purchases to keep it active.
Closing a credit card should be a well-thought-out decision. If you are struggling with high dues, you can consider closing the card and taking a loan at a lower interest rate. Also, if you have multiple cards, it’s better to keep the ones with a long history of good payments, as they help improve your credit score.
So maintaining an active credit card is essential for your financial health. Simply make a small purchase yearly to avoid penalties and enjoy the benefits that come with your card.
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