Although it sounds like a good idea, studies show that leaving your credit card inactive for too long could actually damage your credit; precisely the opposite of what you were probably trying to do in the first place.

There seems to be a shared belief that if you can leave your credit card locked in a freezer long enough you will refrain from using it when you have the urge to shop and eventually you will get over this compulsion for spending. Unfortunately, human behavior is much more complicated than this and what’s worse, when you let your credit card sit unused for too long it can actually negatively affect your credit score.

It might seem easier to stick strictly to cash or to rely on debit cards, which are just as good as cash, essentially, but if you have an active credit card it is not a good idea to ignore them for a long period of time. Indeed, it might seem that not using your card will help you in the long run but the truth is that it may not be so simple. Yes, it is true that keeping a high credit card balance will undoubtedly impose upon your ability to secure better financing for much larger financial services, like an auto loan or a mortgage, but credit is a lot more complex than most people realize.

Still, most consumers understand that it is important to hold some kind of credit balance. This is, truly, the only way you can start your credit history, after all. Furthermore, a card with a meager or modest balance and a generous credit limit, in comparison, will certainly earn you a better credit rating as it is evidence of responsibility. It shows that you know how to maintain a balance and make your payments on time but also that you understand credit is a tool so you do not overstretch your limits.

The much darker reality, though, is that sparing credit card use could do precisely the opposite of these wonderful benefits. The reason for this lies in profitability for the credit card company or the bank. If you never make a purchase, the credit card company does not profit because they cannot charge you interest. The annual fee you might pay every year does not count as profit because this fee is actually assessed to offset the cost of processing your account, even if you never use it; which is what makes non-use particularly important: why are you paying for something that you never use?

In addition to not profiting from a stagnant account, credit card companies actually lose money when consumers process a charge and then payoff the balance before interest starts accruing. While the credit card issuer might collect a swipe fee from the merchant (the very issue that was recently under scrutiny and arbitration), they are also still paying money to process the account and to market the product directly to the consumer (via online promotions, mail and packaging materials, etc.). Because of these losses, credit card issuers will close inactive accounts in order to save money. Unfortunately, the Equal Credit Opportunity Act does not require that card issuers notify cardholders of this cancellation.

The problem with this lies in the fact that if your credit card is cancelled it lowers your credit-to-debt ratio (also known as the credit utilization ratio). With a lower amount of available credit and fewer open accounts your credit score worsens significantly.

Taking all of this into consideration should warrant that you grant equal consideration to any card that you might want to close. Concern yourself with the damage that may be done should you close the account and how much better or worse off you would actually be were you to keep the account open and make a few periodic charges.

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