What is a Dormant Credit Card Account? A Complete Guide

Are you juggling multiple credit cards for different needs? While this strategy can lead to maximising rewards, there’s a potential risk of one (or more) of your credit cards becoming redundant and going inactive. These are called dormant credit cards. Let’s explore what a dormant credit card account is, and how it can impact your credit health.

What is a Dormant Credit Card Account?

If you don’t use your credit card to make purchases, transfer balances, or get cash for a particular period, the credit card company can declare your account inactive. The specific duration varies from company to company. While some issuers may deactivate cards after six months of no activity, others might wait as long as twelve months. Typically, credit card providers will notify you before deactivating your card, giving you the option to keep it active.

For example, One Credit Card will inform you within 30 days if you have not used your credit card for one year. You must then respond if you wish to continue using the card. When a credit card account is deemed dormant, it doesn’t necessarily mean the account is closed. However, it can have an impact on your credit score and overall financial management. Let’s take a look at how:

Impact of a Dormant Credit Card Account

While having a dormant credit card might seem like a harmless choice, it can have several consequences that impact your credit health and overall financial well-being. Some of these implications include:

1. Impact on Credit Score

Certain credit card issuers may levy fees for accounts if there is no activity in your account over some time. These fees could be charged annually or after a specified duration of dormancy. To steer clear of these charges, review the terms and conditions of your card to determine under what circumstances such fees may apply.

2. Account Closure

If your account remains dormant for an extended period, the credit card issuer might decide to close the account. This will harm your credit score, as it reduces your available credit and could shorten your credit history.

3. Fraud Detection and Liability

Infrequent card usage may lead to activities going undetected. Credit card providers typically require fraud claims to be reported within 30 days of occurrence, so delaying reporting could result in you being held responsible for charges. Therefore, it’s crucial to monitor your credit card statements, even if you’re not actively making purchases, to protect yourself from fraud.

Also Read: How To Protect Your Credit Card Information Online

4. Loss of Rewards or Benefits

An often overlooked consequence of a dormant credit card is the loss of its rewards and benefits. These may include perks like cashback, reward points, and travel benefits. Moreover, issuers like One Credit Card offer personalised reward points, where you can unlock up to 5X rewards on your top two spending categories. You risk losing these rewards if your account goes dormant due to inactivity.

Reactivating a Dormant Credit Card Account

Reactivating a dormant credit card account is typically a straightforward process. To initiate the reactivation, contact your credit card issuer to ask about their reactivation procedure. Generally, if your bank marks your credit card as dormant, you can visit the bank to reactivate the account. Be prepared to make your case by mentioning factors like paying EMIs on time and maintaining a credit score and history. You may need to make a purchase, transfer the balance, or request cash to reactivate the account. The timeframe for activation varies from one bank to another. Alternatively, some issuers might automatically reactivate the account once they detect activity.

Preventing Your Credit Card Account from Becoming Dormant

The best way to prevent your credit card account from becoming dormant is by using it consistently. You can do this by making regular small purchases or setting up automatic payments for things like rent, subscriptions, etc. Conversely, consider closing the account if necessary to ensure your credit score remains in good standing.

Understanding what a dormant credit card is and its effects is important for taking control of your financial health. Consider the above-mentioned tips to make informed decisions about managing your credit cards. Ultimately, being up to date with your card issuer’s policies and periodically using your card will help you keep your account active, resulting in a strong credit history.