What to Do With Dormant Credit Cards

Do one thing: While it might be tempting to cancel, keeping your older dormant credit card accounts open and active could potentially help your credit score.

Canceling Dormant Cards Can Hurt Your Credit

When it comes to how we use credit cards, what you don’t know can hurt you – financially speaking. Take inactive, or dormant, credit cards. While having a zero balance on a card seems like it would be a good thing for you, lenders don’t always see it that way. 

Why Dormant Credit Cards Matter

That’s because companies that extend credit to consumers (like you and me) have a vested interest in making sure those who have that credit are using it regularly to make purchases, request cash advances, and even accrue fees if they make a late payment. After all, lenders are in business to make money. And if you don’t use a card with a zero balance, they have fewer opportunities to turn a profit. In fact, if they’re still sending you statements, they’re losing money on the admin costs alone.

Inactive Accounts are Common

According to a recent credit card survey from Auriemma Group, 46% of inactive cardholders in the U.S. say they are likely to start using their dormant card again, while some 35% plan to cancel a card within the next six months. The report of more than 800 credit card holders also found that:

• 33% have at least one inactive card that hasn’t been used in six months.
• Of those inactive users, 54% reported planning to resume using it soon.
• Another 44% say they are considering cancelling the account. 

How Holding Older Dormant Credit Cards Helps You

Those mentioned above in the survey who were thinking of cancelling a credit card may not understand the positive benefits of keeping those older accounts open. Consider these reasons to hang onto older accounts:

Lengthens your credit history

Older accounts contribute to a longer average credit age, which is an important factor in how credit scores are tabulated.

Can improve your utilization ratio

Keeping an account open adds to your total available credit, which can lower the percentage of credit you’re using – which is typically a good thing.

Practically no downside if the card is managed well

As long as the card has no high annual fee and is in good standing, keeping it open tends to support your credit profile over time.

Learn more about the pros and cons of canceling an inactive card.

Should you Keep Dormant Credit Cards Open?

Because every financial situation is different, there are a few things to consider when dealing with older credit card accounts, says Yaghoobians. If you are still on the fence about how to deal with older accounts, ask yourself these questions:

1. Is there an annual fee?
   • If there is no annual fee associated with the card, you probably shouldn’t close it.
   • If there is a fee, depending on how much it is and if the cost outweighs the benefits, it might be worth looking into closing the account.
2. How long has the card been open?
   • If the card has been open for a few years, closing it may negatively impact your credit score, although this will likely be temporary.
3. Are you responsible enough to have the account remain open?
   • If you feel like having the extra card might lead you to make bad financial decisions, then it could be smarter to get rid of the card so the temptation is removed.

Other Consequences of Dormant Credit Cards

• Cards with no activity for six months or longer can be labeled inactive by the issuer.
• When that happens, the issuer could close the account.
• Dormant cards are more likely to be shut down, meaning you lose the credit line and the history that goes with it.

Real Life Solutions: Automate a Bill  

Here’s a real-life example of how to keep an older card open from Bryan Byrer, AAMS, WMCP, founder of Millennial Financial Planning. He advises clients to set up an automated payment using a dormant or less-used credit card account and recommends the following:

• Put a small bill or recurring service on the card so that it is consistently used.
• Pair this with creating an autopay on the due date to ensure it is always paid on time.

Practical Benefits

• Automates everything
• Reduces your mental load.
• Ensuring you maintain your credit history.
• Access to more available credit.
• Helps keep the utilization rate down.

Bottom Line on Dormant Credit Cards

Certified Financial Planner Patrick Yaghoobians, founder of Noor Financial Services, encourages his clients and others to keep dormant credit card accounts open as long as possible. “The cards I don’t use as my daily driver anymore still have at least one recurring subscription active on them,” he says. “This way, they still have activity, and every month I have a low balance to pay off, which improves my credit score.”

With Reporting by Casandra Andrews