Unused credit cards can be costly

By Marianne Curphey

If you have a few cards put aside for specific reasons, such as overseas holiday spending or Christmas shopping, then they might go unused for months at a time. However, in some cases, having cards that you rarely spend on can be costly, both in terms of fees and the potential risk of fraud.

Inactivity or dormancy fees may apply
Some cards will charge you an inactivity or dormancy fee if you haven't used them for a while, usually 12 months. This most commonly applies to prepaid travel cards.

"This is usually in the form of a monthly fee," says Andrew Hagger, director of MoneyComms, a money information website. "Be careful not to leave your card in the bottom drawer for a year or two without using it."inactive-card

If the card still has money on it, after a long period of disuse, the balance will start going toward inactivity fees.

The same concept applies to some credit cards. For instance, the American Express Platinum Cashback Everyday Credit Card comes with a £20 fee for each 12-month period during which there is no activity on your account, and the balance is less than £4.

Be sure to check your terms and conditions for "dormancy" or "inactivity" fees, whether you have a credit card, prepaid card or even a debit card.

Issuer may close card
Hagger says that card companies do monitor your usage and some might look out for cards that are essentially redundant and close them altogether.

They should write to you to let you know that they've closed the card, he says, so make sure you keep track of any correspondence from your credit card company.

However, if you were planning to use the card, this may be an unpleasant surprise, notification or not. Additionally, it could alter your credit utilisation ratio (the amount of credit you use compared to how much you have available).

Say you have four credit cards, all with £1,000 limits. If you're using £1,000 of that credit, whether all on one card or spread between two or three, your utilisation ratio is still fairly low, at 25%. If one card closes, though, you suddenly only have £3,000 available to you, and you're using a third of it. Your utilisation ratio goes up, and your look less appealing in the eyes of future lenders.

It's worth knowing your terms and conditions in this scenario, too, to be sure your issuer won't charge a fee for closing an unused card.

Risk of fraud
In addition to unwelcome fees, if you ignore a credit card for too long, there's a greater chance of fraud. If you aren't spending on a card, you may not think you need to check your account statement regularly. However, if you don't keep up with your statements for all your accounts, even those you seldom use, a fraudster could be using the card without your knowledge, and it could be weeks or months before you find out.

If you aren't keeping track of the card, you likely aren't paying on it, either, and the account may soon show up as in default. There's even a chance the card could be physically stolen; since you don't use it often, it might be a while before you realize it's gone.

You will, of course, be refunded for any fraudulent charges, and be able to correct the error on your credit file, but the process could take some time, and it's a headache that's easily avoidable.

Your options: cancel the card, or keep it active
The easiest way to keep a card active is to set up a recurring charge such as a subscription on it. Then, set up an automatic payment for the amount charged, and you can essentially not worry about it (though you'll be wise to regularly go over your statement). The subscription doesn't have to be monthly, either. As long as there's a charge about once every six months, you should be OK.

Alternatively, if you know you have a card you haven't used in a while, call your issuer and let them know that the card is still active and that you plan to use it soon. This is particularly important if you are about to go abroad with the card, because you don't want your issuer to put a stop on your card thinking it's a fraudulent transaction.

If you want to cancel the card, it's not enough to just snip it in half, says James Jones, head of consumer affairs at Experian. 

"Cutting up your card is not the same as cancelling," he says. "You need to write to your bank or provider and officially close the account. Otherwise that account is still open and still appears on your credit record and counts towards your credit score."

Once you've called to cancel it, look for affirmation in writing, and if you don't see it within a couple of weeks, call the issuer again and ask that they provide that letter.

Jones says that if you really never use the card, and your utilisation ratio is in good shape, it's wise to just close it.

"It is good to be proactive about your finances," he says. "It is fine to keep a card on the side for emergencies, but it is not good financial management to have accounts that you don't monitor regularly, as this could leave you open to fraud."

See related: Keep only the cards you need, Risks of having more cards than you need

Published: 23 December 2015