When it comes to managing credit cards, the general advice is often focused on using them responsibly—keeping balances low, making payments on time, and avoiding unnecessary debt. However, what many people overlook is the potential impact of not using some of your credit cards regularly. While it might seem like a safe strategy to tuck away a few cards and rely on just one or two, this approach can have unintended consequences on your credit score.
Here’s a detailed look at how not using your credit cards regularly can affect your financial health.
1. Risk of Account Closure Due to Credit Card Inactivity
One of the most significant risks of not using a credit card for an extended period is the possibility of the issuer closing the account due to inactivity. Credit card companies make money from interest and fees, so if a card isn’t being used, they may decide to close the account.
Why It Matters:
Impact on Credit Utilization: When a credit card account is closed, your total available credit decreases. This can lead to a higher credit utilization ratio, which is the percentage of your available credit that you’re using. A higher utilization ratio can negatively impact your credit score.
Example: If you have £10,000 in total credit available and you’re using £2,000, your utilization ratio is 20%. If a card with a £3,000 limit is closed due to inactivity, your available credit drops to £7,000, increasing your utilization ratio to about 29%—still within the recommended range, but closer to the threshold where your score might start to be affected.
2. Reduction in Credit History Length
The length of your credit history is another important factor in your credit score. Credit history length is influenced by the age of your oldest accounts, the average age of all your accounts, and the age of your newest account. When a credit card account is closed, especially if it’s one of your older accounts, it can shorten your average credit history length.
Why It Matters:
Impact on Credit Score: A shorter credit history can make you appear less experienced in managing credit, which can lower your credit score. The longer your credit history, the better your score is likely to be, as it demonstrates a longer track record of credit management.
3. Changes in Your Credit Mix
Credit mix refers to the variety of credit accounts you have, such as credit cards, mortgages, and loans. Lenders like to see that you can handle different types of credit responsibly. If you stop using some of your credit cards, you might reduce the variety within your credit mix.
Why It Matters:
Impact on Credit Score: While credit mix isn’t the most significant factor in your credit score, it does play a role. A diverse mix of credit accounts shows lenders that you can manage multiple types of credit effectively. If you rely too heavily on just one or two types of credit, your score could be slightly lower than if you had a more diverse mix.
4. Reduced Opportunity to Build Credit
Every time you use your credit card and pay off the balance, you’re building your credit history. Regular, responsible use of credit cards—paying off balances in full and on time—demonstrates good credit behaviour. By not using some of your credit cards, you miss out on opportunities to positively influence your credit score.
Why It Matters:
Impact on Credit Score: Consistent credit activity helps to establish a pattern of responsible credit use, which is essential for maintaining and improving your credit score. If you’re not using certain cards, those accounts aren’t contributing to your credit score in a meaningful way.
How to Manage Your Credit Cards Effectively
To avoid the potential pitfalls of not using some of your credit cards regularly, here are a few strategies to consider:
1. Rotate Your Cards
Make a habit of using each of your credit cards periodically, even if it’s just for small purchases. This keeps the accounts active and demonstrates ongoing credit use.
2. Set Up Small, Recurring Payments
You can set up small, recurring payments—such as a subscription service or utility bill—to be charged to each card. Then, set up a direct debit to pay off the balance in full each month. This ensures regular activity without requiring much effort.
3. Monitor Your Credit Report
Regularly check your credit report to ensure that all your accounts are active and in good standing. This also helps you catch any errors or fraudulent activity early.
4. Keep Old Accounts Open
If you have an older credit card that you don’t use often, keep it open (unless it has high fees). The length of your credit history is a key factor in your credit score, so keeping old accounts active can be beneficial.
Conclusion
While it might seem harmless to let a few credit cards sit unused, doing so can have unintended consequences for your credit score. The risk of account closure, changes to your credit utilization ratio, a shortened credit history, and reduced opportunities to build credit can all negatively impact your score over time. To maintain a strong credit score, it’s essential to use your credit cards regularly, even if it’s just for small purchases. By actively managing all your credit accounts, you can ensure that your credit score remains healthy and continues to grow.
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