I haven’t used my first credit card in a while.
The rewards aren’t great, I’ve gotten more cards since, and this one kind of fell by the wayside.
When I recently got a replacement card in the mail before the previous iteration expired, I had to wonder: Should I even bother renewing the card? Why don’t I just let it expire?
This is the question I posed to John Ulzheimer, credit expert at Credit Sesame, who told me I had better make that phone call to activate.
“When you let your card expire,” he explains, “essentially, you’re so inactive with the use of that account that you’re almost forcing the hand of the credit card issuer to close the account underneath you.”
He points out that an account generally doesn’t expire on the date you’re given, because you’re sent a new piece of plastic to activate. If you don’t make the call and instead let the account go fallow, the issuer can take the initiative to close the account — without even letting you know.
“Most people find out at the register, or the waiter comes back and says, ‘I’m sorry, your card has been declined,’ and they call and the issuer says, ‘We closed your account nine months ago,'” Ulzheimer says.
“If you choose to never activate the card, they’re eventually going to close the account,” he continues. “The balance is here that you are a customer not generating any revenue at all, yet you’re a risk because there’s this outstanding line of credit. No revenue with risk is a bad tradeoff for the bank.”
Here’s the thing to keep in mind, though: By definition, having an account closed isn’t a disaster. The problem with an account closing is its effect on your credit utilization rate, or the percentage of available credit you’re currently using. The less you use, the better for your credit score, and decreasing the total amount of credit available to you will quickly bump up your percentage used.
If you have a dozen cards, there might not be much impact. If you have two or three, you’ll want to tread carefully. “If you let a card with a $US300 limit close, that’s probably negligible,” Ulzheimer explains. “If you let a card with a $US30,000 limit close, that could be catastrophic.”
He also corrects the common misconception that a card closing means you lose the age of that card when it comes to your credit history (another factor in your score). As long as the card is on your credit report, you still get the benefit of its age, and closing a card doesn’t pull it off your report.
So what if you, like me, are over your old card?
The best move according to Ulzheimer is to set a calendar reminder and use old cards sporadically. “My advice would be to put them on a revolving door,” he says, “just to knock the dust off them, and to use as an incentive for the issuer not to close it underneath you.”