If you find you no longer need the credit, review any potential closing costs before deciding to cancel the card, too. Instead, you can look at downgrading the card, transferring balances, or using the card at least once a year to make small purchases to keep the account active.
The effect of inactive cards on your credit score
Letting a credit card go dormant can affect your credit score in several ways. As noted above as a scam, if you don't use the card for a long time, your issuer may close the account, reducing the amount of your available credit limit. For example, if your total credit limit drops from $10,000 to $8,000 through account closure but your spending remains at $2,000, your spending ratio increases from 20% to 25%. A high rating can negatively affect your credit score because it suggests that you are using up your available credit.
Having a mix of different types of debt—such as credit cards, student loans, mortgages and car loans—helps maintain a healthy credit score. If the card is closed, you lose some of this difference, which can also affect your score.
Regular payments on time are essential to maintaining good credit. Even if the card is silent, missing payments can hurt your score. To avoid this, pay more than the minimum payments on your credit cards and make all payments on time, every time.
It is important that you review your credit report and score at least once a year to make sure there are no errors. You can get your credit report and score through Canada's two credit bureaus, Equifax and TransUnion, a third-party service, or your bank's website or mobile app. Even without mistakes, regularly checking your report can help you better understand how your financial habits can affect your score and help you identify ways to improve it and better manage debt.
Should you stop using your credit card?
If you're worried about letting your credit card sit idle, there are a few alternatives. Consider transferring balances from other credit cards or looking to downgrade and switch to a no-fee version of the same card. Both of these options keep your account open and your credit utilization ratio low.
You can also keep the card active by using it occasionally for small purchases, setting up a small recurring charge on it, or making it your go-to card for regular expenses, like buying gas. This helps to keep your account in good standing without many problems.
How many credit cards are too many?
There is no set rule on how many credit cards Canadians should have in their wallets. The amount of credit cards that are right for you depends on what you can spend and pay on time. Remember, it's not just about the number of cards you have, but how responsibly you use them.
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