Using a credit card is a staple all over the world, especially if we look at the UAE and Gulf countries. People cannot stop using their credit cards in the UAE. Credit cards have become a constant in most consumers’ financial being. credit cards provide financial assistance to help you meet your needs at times of urgency.
A common reason for using a credit card is that you don’t need to carry cash and can spend as much as you want with the flexibility to return outstanding during the bill payment. A credit card increases an individual’s ability to pay for bulk purchases and also incur any unexpected expenses that pop up. But when we see the trend in the Gulf, we find out that they don’t know how a credit card which is lying dormant is affecting them a lot.
So what is the most crucial component and consequence which a person faces for use or non-use of your credit cards: it is when your credit score is calculated. The utilisation of your credit card affects your debt ratio, your payment history and also the duration of your credit track record. In UAE, according to a study on credit card usage, pointed out that not more than 30 per cent of the available credit limit was utilised by maximum credit card users, which is, of course, a good sign.
But many people have applied for a credit card, got one from the bank but have never used it maybe because they did not feel the need to do so! But what is more concerning is the fact that many of them are not aware of when not to use your credit card. It can also negatively impact your credit score. It is imperative to go in detail of that plastic money so that you don’t get charged unnecessary or even spoil your overall credit score.
Why Do People Not Use A Credit Card Or Hesitate To Use It?
There can be many reasons why people let their credit cards lie dormant in their wallets or their desk drawer. People feel that the rewards on credit cards are not beneficial enough to make them use it daily. While for some, the credit cards which they got have been wholly forgotten, and they have started using the new ones. Some people apply for a credit card, thinking they might need it in times of emergency, but that urgency never strikes. They fail to use that credit card and ultimately forget about its existence as well. Whatever be the reason for an inactive credit card, some things are there to be aware of to avoid your credit profile getting impacted negatively.
The Bank Or Issuer Might Close Your Card
For many people owning a credit card is like owning an asset which they can make use of whenever they need it, but to let them know that is not the case. In cases where your credit card account goes through a long period of inactivity, then your bank or card issuing company may close it without any prior warning. Which would also mean :
- You cannot use your credit card even if you want to and you will find this out when it is probably too late.
- Your credit score will get hugely impacted.
Let us see in detail how it all leads to a bad credit score :
Impacts Your Credit Score
When a credit card is not used for a long time, then the bank or the credit card issuing company close your card account. This very clearly means you’re your credit score is hit negatively. The reason; available credit from all the sources makes your utilisation rate; therefore if your account gets closed involuntarily, then it would mean a reduction in your credit score. This reduction in credit score would damage your entire credit report affecting your chances of availing a loan in the future if there is an emergency. So it is advisable not to make your credit card inactive and in cases where you don’t require it, cancel it.
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All the above stands true in a case where you own outstanding balances on the remaining credit cards, also in cases where your currently closed credit card remained open for a long time. There is truth in the latter statement as closing an established account with some good years of payment history brings down the length of your average credit account. While in either case, it is never right to own an inactive credit card which suddenly gets closed, impacting your credit score.
But there are certain cases where the individual is meant to pay the bills on time and in full every month, but he/she stops using the credit card completely. So, in this case, the credit score won’t get affected a lot as the person has built a strong credit history already.
Interest Will Continue Getting Charged
Even after you stop using the credit card, you will still pay interest on balances that were charged before you stopped using it. So if you stopped using it and did not pay the outstanding then brace yourself for interest charges. In cases where your balances are all paid, then there won’t be any requirement to send out any new payments. When you wish to close your card, then you won’t have to pay any fees. But if you are charged an annual fee, then your stopping to use the card won’t mean that you will not be required to pay the annual fee. It is for you to decide if the card seems unnecessary to you, then you should fully close it rather than keeping it in your wallet or drawer without using it.
Fraudulent Charges Can Show on Your Card
There have been recent cases in UAE where people stopped using their credit cards thinking they are safe, but some fraudulent charges appear as soon as they check their statements. These charges can go unseen by the cardholder for weeks and even months. So it is better to keep checking any suspicious charges on your card. This would also mean accumulating various interests on those fraudulent charges. This generally happens with people who keep inactive cards with them and don’t check card statements regularly or the payment apps frequently for checking the status of the card. They feel everything is fine.
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How To Deal With An Inactive Card?
After reading the above if you also stand concerned for an inactive credit card that can very well negatively impact your credit score, then there are some strategies that can be followed in order to prevent the consequences. The first one would be to take out that card and make use of it for small purchases only to keep it on track. After which whatever little outstanding remains on the card to be paid, just dust it off with a smile!
Apart from these, you can even use your credit card to pay off your monthly subscriptions and memberships like for some magazines, tv shows, etc. This way, your card would get used automatically without stressing you out on where to use it.
If your credit card is very old and the day of its cancellation is coming close then, it is time for you to decide whether you want to keep it or close it and apply for the latest credit cards available.
So if you want to continue with your credit card account, you should keep using it occasionally. If you are spending more money just because you are having more credit cards and you want to manage your credit with a fewer number of credit cards then it is advised to cancel the cards properly, without getting your credit utilization ratio raised significantly else it will ultimately make your credit score gets affected. So, It is advised to cancel the credit card at the right time, when you don’t have high balances on the rest of your credit cards and this way you can minimise the negative impact on your credit score.