Picture this: You have a credit card tucked away in your wallet that you haven’t used in months. Maybe you switched to a new card with better rewards, or perhaps you just forgot about it. Little did you know, your unused card might be quietly turning into a dormant credit card account. But what exactly does that mean, and why should you care?
A dormant credit card is an account that has seen no activity—no purchases, balance transfers, or cash advances—for an extended period, usually ranging from six months to a year. Banks keep a close eye on these inactive credit card accounts for various reasons, and the consequences of letting your card remain dormant can be both positive and negative.
Let’s dive deeper into the world of dormant credit cards and explore what they mean for your financial health.
What Makes a Credit Card Account Dormant?
Definition and Criteria
A credit card becomes dormant when it hasn’t been used for a significant period, typically six months to a year, depending on the bank’s policies. It’s important to note that interest charges or maintenance fees don’t count as activity. The card needs to be used for transactions like purchases, balance transfers, or cash advances to remain active.
Common Reasons for Inactivity
There are several reasons why a credit card might become dormant:
- Switching to a new card with better rewards or features
- Paying off the balance and not needing the card anymore
- Forgetting about the card’s existence
- Having too many cards and not using them all regularly
Why Banks Mark Credit Cards as Dormant
Risk Mitigation
One of the primary reasons banks label accounts as dormant is to reduce the risk of fraud. An inactive credit card is more vulnerable to unauthorised transactions since the cardholder might not be monitoring the account closely. By marking the card as dormant, banks can keep a tighter grip on potential security breaches.
Resource Allocation
Managing active credit card accounts requires significant resources from banks, including customer support, transaction processing, and fraud detection. By focusing on accounts that are regularly used, banks can allocate their resources more efficiently and provide better service to active customers.
The Consequences of a Dormant Credit Card
Potential Positive Outcomes
- Maintaining Credit History: Keeping a dormant account open can help maintain a longer credit history, which is a crucial factor in determining your credit score. The length of your credit history accounts for 15% of your FICO score, so having an old, dormant card can actually be beneficial.
- Lower Credit Utilisation: The credit limit on your dormant card contributes to your overall available credit. If you’re not carrying balances on your other cards, having a dormant card with a high credit limit can lower your credit utilisation ratio, which is another important factor in your credit score calculation.
- Emergency Backup: A dormant credit card can serve as a financial safety net in case of emergencies. If your primary card is lost, stolen, or maxed out, having a backup card can be a lifesaver.
Potential Negative Outcomes
- Inactivity Fees: Some credit card issuers charge inactivity fees if you don’t use your card for a certain period. These fees can range from a few dollars to a significant percentage of your credit limit, eating into your available credit and potentially causing financial strain.
- Account Closure: If your card remains dormant for too long, the bank might decide to close the account. A closed dormant account can negatively impact your credit score, especially if the card had a long history and a high credit limit. Losing that account can shorten your average credit age and increase your credit utilisation ratio.
- Missed Rewards: By not using your credit card, you’re missing out on potential rewards like cashback, points, or miles. If your dormant card has a valuable rewards programme, you might be leaving money on the table by not taking advantage of it.
- Increased Fraud Risk: Dormant accounts are less likely to be monitored regularly by the cardholder, making them more susceptible to fraudulent activities. If you’re not keeping an eye on your inactive credit card, you might miss unauthorised transactions or identity theft attempts.
Reviving a Dormant Credit Card Account
If you find yourself with a dormant credit card, don’t panic. Reviving the account is often a simple process:
- Make a Purchase: The easiest way to reactivate a dormant card is to make a small purchase. Buy something inexpensive, like a cup of coffee or a pack of gum, and pay off the balance immediately. This transaction will signal to the bank that the card is back in use.
- Contact the Issuer: If your card has been inactive for a long time, the bank might have closed the account. In this case, you’ll need to contact the issuer and request that they reopen the account. Be prepared to provide identification and answer security questions to verify your identity.
- Update Your Information: If you’ve moved or changed your contact details since you last used the card, make sure to update your information with the issuer. This will ensure that you receive important communications about your account and can monitor it effectively.
Preventing Dormant Credit Card Accounts
To avoid the potential pitfalls of a dormant credit card, consider these proactive strategies:
- Set Reminders: If you have multiple credit cards, set reminders to use each one periodically. You can schedule a small recurring payment to keep the card active without much effort.
- Monitor Your Accounts: Regularly review your credit card statements and online accounts to ensure there’s no suspicious activity on your dormant cards. Catching fraud early can save you from financial headaches down the road.
- Communicate with Your Issuer: If you know you won’t be using a card for an extended period, reach out to the issuer and inform them. They might be able to waive credit card inactivity fees or provide guidance on keeping the account active.
- Reassess Your Card Portfolio: If you have multiple credit cards that you’re not using regularly, consider closing the ones that no longer serve your needs. Just be mindful of the potential impact on your credit score and keep your oldest accounts open if possible.
The Bottom Line
A dormant credit card account can have both positive and negative consequences for your financial health. While an inactive credit card can help maintain a longer credit history and lower your credit utilisation ratio, it can also be subject to credit card inactivity fees, account closure, and increased fraud risk.
By understanding what makes a card dormant and taking proactive steps to prevent or revive inactive accounts, you can leverage your credit cards to your advantage. Whether you’re using your card for everyday purchases or keeping it as an emergency backup, staying on top of your credit card activity is key to maintaining a strong financial foundation.
Ready to take control of your credit card activity? Check your credit score and explore credit cards offered by Airtel Finance to find the perfect one for your needs. With the Airtel Thanks app, managing your credit card has never been easier. Don’t let dormant accounts hold you back—start optimising your credit card usage today!
FAQs
- How long does a credit card have to be inactive to be considered dormant?
The time frame for a credit card to be considered dormant varies by issuer, but typically ranges from 6 to 12 months of inactivity.
- Do dormant credit cards hurt your credit score?
Dormant credit cards can actually help your credit score by maintaining a longer credit history and lowering your credit utilisation ratio. However, if the issuer closes the account due to prolonged inactivity, it could negatively impact your score.
- Can a bank close a dormant credit card account without notice?
Banks can close dormant credit card accounts without notice, but they usually send a notification to the cardholder before taking this action. It’s important to keep your contact information up to date and monitor your accounts regularly to avoid surprises.
- How can I keep my credit card active without making purchases?
You can keep your credit card active without making significant purchases by setting up a small recurring payment, like a subscription or utility bill, and paying it off each month. This keeps the card in use without requiring much effort on your part.
- What should I do if my dormant credit card account is closed by the issuer?
If your dormant credit card account is closed by the issuer, you can contact them and request to reopen the account. Be prepared to provide identification and answer security questions to verify your identity. If the account cannot be reopened, consider applying for a new card to maintain your credit mix and overall credit health.
