Is it bad to have a credit card and not use it?

Do you have a credit card but for whatever reason find yourself seldom using it? You may have wondered if this is actually a good or a bad thing, or if it can even impact your credit history.

The popularity of credit cards has been slipping in recent years. Australians have been cutting up credit cards in droves, with the number of accounts falling by half a million, according to the latest figures from the Reserve Bank of Australia. And those who still have credit card accounts open are using them more responsibly by paying down their debt.

If you’ve got a credit card and you’re not using it, here is everything you need to know:

What are the risks of having a credit card you don’t use?

There are some potential costs and credit score impacts you may be stung with if you don’t use your credit card.

Firstly, you may run the risk of your credit card provider closing your account due to inactivity. The actual time frame for this will differ per each card provider and should be in your credit card’s terms and conditions online. This can be an issue for your credit history, as closing a credit card – whether due to inactivity or by choice - may lower your credit score.

If you don’t notice your credit card has been closed due to inactivity, causing your credit score to drop, and you apply for financial products, you may not be approved, and rejection will further hurt your credit history.

Secondly, if your credit card carries an annual fee, you’re inadvertently paying a costly ongoing fee for no real reason. If you keep a credit card active that charges an annual fee, you may be paying a card provider potentially hundreds of dollars for a service you don’t use.

The biggest risk around having a credit card you don’t use is if you had an outstanding balance you weren’t aware of. By not making even minimum repayments and ignoring an outstanding balance, you may come to find this credit card debt has snowballed over the years through interest and fees.

Will not using my credit card hurt my credit score?

Your credit score should be mostly unaffected by your credit card inactivity. However, as mentioned earlier, if your account were to be closed due to inactivity this may hurt your credit score. Or, if you had an outstanding balance on your credit card and weren’t making repayments, this may reflect negatively on your report.

The way lenders and credit providers view your credit history is changing. Comprehensive credit reporting means that moving forward, your positive credit behaviours will be recorded and potentially boost your credit score. This includes paying bills on time, meeting minimum repayments on card balances and paying off your debts in full.

If you’re concerned your inactivity may impact your credit history, consider bolstering your credit report with positive activity.

Low-use credit card options

Perhaps you like the idea of having a credit card around but only using it for emergencies. Consider reviewing at the type of credit card you’ve chosen, so you can keep your plastic in your back pocket for one-off spends.

1. Low-rate credit cards. If you’re keeping a credit card around for emergencies, consider using one with a low purchase rate. This way if you do make purchases, you’re keeping your chance of growing debt low.

2. No annual fee. There are a multitude of credit card options on the market that don’t charge an annual fee. If you only use your credit card once a year, for example, consider cutting out the biggest ongoing expense you’ll be charged.

3. Buy now, pay later. If you like the idea of having access to funds you can pay off in part-payments, consider buy now, pay later alternatives, like Afterpay or ZipCo.

How do I close my credit card for good?

So, you’ve decided to close your credit card once and for all. But just because you cut up your credit card doesn’t mean your account is closed for good.

Follow these steps to ensure you’ve closed your credit card account once and for all:

1. Pay your balance in full.
2. Cancel or redirect any direct debits, such as utilities bills.
3. Hop online or pick up the phone and call your credit card provider requesting to cancel the account. Request a confirmation email or letter once this has been actioned.
4. If you have owed credit from the provider, ensure a refund is performed.
5. Now you can cut up your credit card.

If you’re struggling to get on top of your credit card balance to close it for good, ASIC’s MoneySmart website recommends a few simple ways to pay down your debt.

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