Are you among those who have credit cards but don’t use it much? Are you the one who has a number of credit cards but forgets to use all the cards even once in a quarter? Do you find using credit cards a bit tricky and confusing? If any of your answers is in affirmative, your credit card may be deactivated by the provider due to long inactivity. If you have any questions about credit card inactivity, you need to read this article.
What is credit card inactivity?
Credit card inactivity is the non-usage of credit card for an extended period of time. When the duration crosses a specific period, the credit card is deactivated by the provider company. The duration of dormancy for deactivation may vary from one provider to another. Generally, banks deactivate a credit card after six months of dormancy but this is not the case for every card.
When is a credit card deactivated by the provider?
There is no specific time period that a bank waits before deactivating an inactive credit card. It varies from one bank to another. Some issuers deactivate a credit card after six months of dormancy. However, there are instances where an inactive credit card is found not deactivated for more than a couple of years.
An issuer does not deactivate credit cards quickly. Deactivating a credit card account would mean a loss in business. So an issuer gives all the time to the cardholder to use the credit card even after an extended period of dormancy. However, a time comes when the cost incurred by the issuer goes beyond the revenue generated from it. Hence, the issuer finally deactivates the credit card.
When should you deactivate your credit card?
It is not the case that only the issuer/provider can deactivate your credit card, you can also get your credit card deactivated. Some of the reasons for deactivating your credit card are mentioned below:
- There may be a condition that you have a number of credit cards and you do not need a card that incurs high annual fee. You can get the card deactivated by requesting the provider.
- Some banks allow you to keep more than one credit card for the same account but the credit limit remains the same i.e., shared between the two cards. Generally, one of the credit cards has an annual fee whereas the other is a zero annual fee credit card and if you do not want to pay the annual fee on the credit card, you can deactivate the credit card with annual fee without losing the credit limit.
- In case you have huge outstanding on your credit card and are unable to make the payment, you can opt for balance transfer of your funds to a card that has low interest rate and close the credit card account.
Why should you keep using your credit card frequently?
There are a number of reasons for keeping on using your credit card. Some of them are mentioned below:
- Your credit card comes with a number of benefits which you may not be aware of. Some of these benefits may include but not limited to offers like personal accident cover, air accident cover, reward points, insurance against fraudulent activities, etc. These benefits expire if the card is not used regularly. In case you leave your credit card inactive, these offers may cease to be provided on your card.
- Most Reward Programmes come with an expiration clause and if you do not use the card or points before the deadline, your points might get expired.
- In case you do not use your credit card quite often, you may not be able to detect fraudulent activities, if any. You have to report any fraudulent activity within 30 days of transaction and if not reported, the issuer will charge you for the transaction which was not done by you.
- Many cards provide milestone benefits and if you use your credit card quite frequently, you may end up getting huge benefits from the issuer.
Credit Card Hacks against Deactivation
You can prevent your credit card from deactivation by following some of the simple tips and tricks mentioned below:
- Carry out even a small transaction on your credit card. This will help in keeping your card active and you will also be able to track any fraudulent activity on your card.
- Make an extensive plan on using your specific credit card for a specific purpose to increase your savings. For example, use a fuel credit card for fuel transactions, shopping card for all purchases, travel credit card for flight ticket and hotel booking, etc.
- Make your payments on time. In case you have used up your credit limit, your card will be temporarily deactivated by the issuer till you pay the outstanding amount.
- In case you have defaulted on your monthly payments, your bank may deactivate your credit card for some time. You can transfer the outstanding balance on one credit card to another and convert it in easy EMIs.
Impact of your credit card deactivation on your credit score
Your credit card comes with a credit limit and when you make any transaction using your credit card, your credit limit is blocked for that amount. The ratio of used limit to the total available limit is known as credit utilization ratio. It is recommended to keep your credit utilization ratio to below 30%.
When you close a credit card account, your credit limit of that card gets reduced from your overall credit limit and in turn increasing your overall credit utilization ratio significantly. If the overall ratio goes beyond 70%, your credit score might get impacted.
However, if you have a significantly high overall credit limit, you need not worry for deactivating a credit card with an insignificant credit limit as it will have a nominal impact on your credit utilization ratio. But, it is recommended to keep your ratio as low as possible.
Do credit card issuers have to inform before deactivating an inactive credit card?
A credit card issuer is not required to inform the cardholder for deactivating the credit card account due to dormancy in India. Some countries, however, have made provisions for issuers to inform the cardholder 30 days prior to deactivating his/her credit card.
However, most credit card providers send intimation to the cardholder 30 days before closing the credit card account as even they want the cardholder to use the card and keep the account active.
What should a cardholder do if the credit card is deactivated due to inactivity?
In case your credit card is deactivated due to dormancy, you should take the steps mentioned below to prevent any altercations in future:
Contact the issuer for reactivation – A simple follow up by the cardholder can sometimes lead to reactivation of the credit card. However, you can send a written request to the issuer to reactivate your credit card mentioning that you have always made the payments on time and have a good credit history.
Check your credit score – If the limit of your deactivated credit card was pretty high, your credit score may take a deep plunge owing to the increase in your overall credit utilization ratio. Check whether your credit score is least impacted and if there is a considerable drop in your score, you can take corrective measures to rebuild your credit score.
Monitor your credit report for closure – Do monitor your credit report every month to ensure that your credit card account is closed in the report as well and there is no outstanding bill on the account. Your credit accounts remain in your credit report for a minimum of seven years and if your account is not closed under agreed circumstances as settled, your credit report may be left tarnished.
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It is never recommended to get your credit card deactivated especially when it is your first credit account as it shows your oldest financial relation with a lender. However, if your credit card is of not much use to you, you can get it deactivated on your own as well. If your credit card was deactivated and you still want to keep on using it, you can request your lender to reactivate it and allow you to keep on availing facilities associated with it.