Credit cards are a convenient source of quick funds to meet almost any need. Not only do they allow you to make purchases and payments easily, but you can also earn rewards, and build your credit score. However, have you wondered what would happen if didn’t use your
credit card?
In this blog, we'll explore the consequences of credit card inactivity and what you should know to avoid any negative impact on your financial health.
Do note that a recent Reserve Bank of India rule states that in case a credit card remains inactive for more than a year, the card issuer should initiate the process of closing the card after informing the cardholder.
What an inactive credit card means for you
When you don't use your credit card for a long time, your credit card issuer may consider your account inactive. This inactivity can lead to various consequences, such as account closure, a decrease in credit limit, or even a negative impact on your
credit score.
1. Account closure: If you don't use your credit card for a prolonged period, your credit card issuer may close your account and declare the card as a closed credit card. When that happens, you'll lose the credit limit associated with that account, which could negatively impact your credit utilisation ratio.
2. Decrease in credit limit: Credit card issuers may decrease your credit limit if your account is inactive. This reduction in your credit limit can also affect your credit utilisation ratio and negatively impact your credit score.
3. Negative impact on your credit score: The credit utilisation ratio is an essential factor that affects your credit score. If you have a high credit limit and a low balance, your credit utilisation ratio will be low, negatively impacting your credit score.
Credit card fees and penalties
Credit card fees and penalties are charges credit card companies levy on their customers for various reasons. These fees and penalties can add up over time and result in significant expenses, especially for those who don't use their credit cards regularly.
Here are some common credit card fees and penalties you should know:
1. Annual fees: Some credit cards come with an annual fee that you must pay regardless of whether you use the card or not. Depending on the card and its benefits, these fees can range from a few to several hundred rupees.
2. Penalty fees: Credit card companies may charge penalties for various reasons, such as late payments, exceeding your credit limit, or returned payments. Making timely payments and staying within your credit limit is essential to avoid these fees.
3. Inactivity fees: Some credit card issuers may charge an inactivity fee if you don't use your credit card for a certain period. Inactivity fees are usually assessed if you haven't used your credit card for six months or longer.
4. Balance transfer fees: Balance transfer fees are charged when you transfer a balance from one credit card to another. These fees can be a percentage of the balance transferred, usually around 3% to 5%, or a fixed amount.
Security concerns
Security concerns are a critical aspect to consider regarding credit card inactivity. Not using your credit card for a prolonged period can increase the risk of fraud or identity theft, severely affecting your financial health.
Fraudsters are always looking for inactive accounts that are less frequently monitored, for their fraudulent activities. And you may find yourself paying off bills generated by these fraudulent activities.
Additionally, last year the Reserve Bank of India asked card issuers to deactivate credit cards that remain unused for more than a year. And to close cards that are not activated within 30 days of issuance.
Now, don’t you think it is better to use your credit card and manage your finances smartly?
Axis Bank is one of India's leading banks that offer a range of credit cards to cater to different needs and lifestyles. Their credit cards come with attractive rewards, cashback, and other benefits, making them popular among customers looking for convenient and affordable credit solutions.
Also Read: [ Follow these lifestyle changes to save money]
Summing Up
You must use your credit card regularly to avoid any negative impact on your financial health. If you have a credit card with an annual fee, keeping the account active is essential to make the fee worthwhile.
Disclaimer: This article is for information purpose only. The views expressed in this article are personal and do not necessarily constitute the views of Axis Bank Ltd. and its employees. Axis Bank Ltd. and/or the author shall not be responsible for any direct / indirect loss or liability incurred by the reader for taking any financial decisions based on the contents and information. Please consult your financial advisor before making any financial decision
