The popularity of credit cards has increased rapidly in the last decade. With the launch of countless credit cards in the market, people now have the option to choose the one that meets their desires and spending habits. Today, there are cards designed particularly for fuel, movies, food, travel, shopping, etc., and potential cardholders can choose the ones that they want. For instance, if you are a movie enthusiast and you visit theaters every week, you should select a credit card that is designed for entertainment purposes with great discounts.
With multiple credit cards in a single wallet, there is a chance that only one credit card is being used for most transactions, or there is this one particular card that has not been used for an extended period of time. There could be many reasons why the credit card has not been used for a long time, which leads to the concept of a dormant account. This article will go through all the information related to a dormant account, including its features and how it is different from closed credit cards.
What is a Dormant Account?
A dormant account, also known as an inactive account, is a situation where the cardholder has not used a credit card for more than six months. When a card remains unused for a duration of 6 months or more, the bank considers it inactive and stops allowing transactions like purchases or cash advances. There can be various reasons for not using a card, such as preferring another card or simply forgetting about it. While having a dormant account can help limit spending, it may also affect your credit score. If you decide to start using it again, you can typically reactivate the card, but it’s important to check with your bank for their specific rules.
Pros and Cons of Dormant Credit Cards
Pros
- Helps Control Spending: Since the card is not being used, it can prevent unnecessary purchases.
- Maintains Credit History: Keeping the account active can still contribute to your overall credit history.
- No Immediate Fees: If the card isn’t being used, you avoid potential transaction fees.
Cons
- Credit Score Impact: A dormant account may negatively affect your credit score if not monitored properly.
- Risk of Account Closure: Banks may close dormant accounts after a period of inactivity, which can affect your credit history.
- Potential Fees: Some credit card companies may charge fees for inactivity after a certain time.
When Should Cardholders Deactivate their Credit Cards?
Cardholders should consider deactivating their dormant account credit card when they realize they will not use it anytime soon, especially if they have other beneficial cards in their wallet. Keeping a card that won’t be used can lead to potential fees and may negatively affect their credit score. If you find that a particular card just sits unused for months, it’s a good idea to deactivate it to avoid any complications. But, if you think you might use it in the future or if it contributes positively to your credit history, it might be worth keeping it active.
How Does a Credit Card Dormant Account Affect Credit Score?
If the bank declares your credit card inactive, it will have a huge negative impact on your credit score. When a credit card goes unused for more than six months, it is marked as dormant, which can lower your overall credit utilization ratio. This ratio is an important factor in credit scoring, as it compares your total credit card balances to your total credit limits. A higher utilization rate can signal potential financial trouble to lenders, leading to a decrease in your score. If the bank decides to close the dormant account, it reduces your total available credit, which can further negatively affect your score.
Can a Dormant Account be Activated Again?
A dormant account credit card can be activated again if the cardholder wants it. If you have a credit card that hasn’t been used for a long time and has been marked as inactive, you can reactivate it by simply using it again or by visiting your bank branch. Most banks will let you reactivate the card if you want to start using it once more. Remember that the bank may request you to update your personal information and contact details and be aware of all the terms and conditions set by your bank.
Bottom Line
A dormant credit card account occurs when a cardholder hasn’t used their card for over six months. Usually, it depends on the bank when they want to deactivate an unused credit card, but most banks declare a credit card as a dormant account after six months or wait till a year. While having a dormant account can help control spending and maintain credit history, it may negatively impact your credit score and lead to the account being closed by the bank. If you choose to reactivate the account, you can do so by using the card again or contacting your bank. A cardholder should be aware of the policies and conditions set by the bank to avoid any fees or penalties.