Most Americans only have one or two credit cards, according to The Ascent's recent credit card survey. But there's a substantial minority who hold onto four or more cards. When you have that many, it's possible that you may not use them all each month.
Charging nothing to a credit card for a month or two probably won't change anything for you, but if you go several months without using a card, you can expect the issuer to take notice. Here's what could happen.
Kiss your credit card goodbye
Most credit card issuers will overlook a few months of inactivity, but if you go six months to a year without charging a single item to your card, the issuer will likely cancel it for you. Each company sets its own rules for how long it will wait before it cancels an inactive card. If you have any questions about the rules for your card, you can always reach out to the issuer and ask.
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If the company doesn't close the account altogether, it could lower your credit limit. You may be able to reverse this by reaching out to the company and asking it to restore your previous limit, but this is up to the credit card company's discretion.
Your credit could be affected
A reduced credit limit or closed credit card will affect your credit score -- specifically, your credit utilization ratio. This is the ratio between the amount of credit you have available to you and the amount you use every month. For example, if you have a card with a $10,000 limit and you charge about $2,000 to the card, your credit utilization ratio for that card is 20%.
Ideally, you want a credit utilization ratio that's above zero, but less than 30%. This shows that you've borrowed money in the past and have been able to pay it back without too much difficulty. A higher credit utilization ratio indicates that you might be living beyond your means. That's why it reduces your credit score.
When you close a credit card on your own or the bank does it for you, your credit utilization ratio automatically goes up because you now have less available credit. It's not unusual to see your credit score take a dip in this situation, but it may not be the end of the world.
Sometimes, closing a credit card can be a smart move. For example, if the card charges an annual fee that's costing you more than you earn in rewards, it probably doesn't make sense to hold onto it. Closing it might cause a temporary drop to your credit score, but as long as you don't close any other cards for at least six months and your overall credit utilization ratio remains under 30%, it probably won't affect you too much.
How to stop your credit score from taking a hit
You may not be able to stop your credit score from dropping following an inactive credit card closure. But there might be some things you can do to ensure that this doesn't hurt your credit score too badly.
First, review your credit utilization ratio across all your other cards. Take a look at your ratio on each card individually as well as overall. Whenever possible, try to ensure that this remains under 30%. If it's not, you may have to charge more to certain cards and less to others or reduce how much you put on your credit cards overall.
Another way to reduce your credit utilization ratio is to pay your bill twice per month. The credit card companies only report your balance to the credit bureaus once per month. So making a payment halfway through the month and again at the end makes it appear as if you only charged about half as much as you actually did to your card that month.
You could also see about increasing your available credit by either opening a new credit card or raising the limits on your current credit cards. But you should only do this if you feel fairly confident that you'll be approved. When applying for new credit, lenders do a hard inquiry on your report, which also drops your score by a few points. But this won't matter if you're approved for a higher limit and your credit utilization ratio drops significantly.
And if you'd like to avoid this whole issue altogether, make sure you charge a few small items to each of your credit cards at least every few months. This could prevent your card issuer from canceling your account or reducing your available credit in the first place.
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