Does Credit Card Inactivity Affect Your CIBIL Score?

Credit card inactivity can indirectly affect your CIBIL score over time, but the exact reasons for this are often misunderstood. Many people believe that not using a credit card is safer for their credit profile. However, responsible and regular usage of a credit card can actually support a healthy CIBIL score.

In this blog, we will break down how an inactive credit card can impact your CIBIL score and what you should keep in mind to protect your overall credit profile.

What Happens When Your Credit Card Stays Inactive?

If you leave your credit card unused for an extended period, your issuer may reduce your credit limit or even close the card. The specific inactivity period, such as 12 months or more, varies by issuer. A reduction in your credit limit or card closure can impact your credit utilisation ratio, shorten your credit history, and ultimately indirectly impact your CIBIL score.

Also Read: Do’s and Don’ts of Using a Credit Card

How Does Credit Card Inactivity Affect Your CIBIL Score?

While there might not be a direct effect on your credit score at first, it may take a hit eventually. When your issuer takes strict action against your card, the following factors are impacted, which also affect your CIBIL score:

• Weakens Your Credit Mix: If you have built a strong credit mix of a Personal Loan and one or more credit cards, the closing of a card can weaken it and, in turn, lower your CIBIL score. This is especially true if this was your only credit account. A good credit report should always show that you can manage different credit accounts responsibly.
• Increase in Credit Utilisation Ratio: Your credit utilisation ratio is the percentage of credit you use out of your total limit. If an inactive card is closed or its limit is reduced, your total available credit drops, which can increase your utilisation ratio. A higher ratio signals greater reliance on credit and can lower your CIBIL score over time.
• Negative Influence on Credit History: Credit history reflects how long and responsibly you’ve used credit. If an inactive card is closed, it can reduce your average credit age and weaken your credit profile. Since this is an important factor in your CIBIL score, it may lower your score and affect loan approvals.
• Unfavourable Impressions of Credit Management: When your credit card gets closed or reduced from its previous limit, it remains on your credit report for years. This might leave an impression on future lenders that you struggle to manage credit effectively, which in turn might influence decision-making in credit approvals.

Tips to Optimise Your Credit Card Use and Improve Your CIBIL Score

A credit card is a good tool to increase your CIBIL score. If you were wondering how to make the best use of it, here are some tips:

• Apply for cards that you can manage and use efficiently.
• Avoid having or applying for too many credit cards. More than 3 cards can be quite difficult to manage.
• Keep your card active by making small purchases. One of the best ways to do so is by paying utility bills.
• Ensure to pay your credit card bills before their due date every month. Get into the practice of paying the full amount. On some occasions, you can pay the minimum amount and clear the pending bill later.
• Avoid spending more than you can afford to pay back. While you may have available credit, using it smartly is the best way to manage your CIBIL score.
• Build a habit to monitor your credit score regularly, as it can give you a chance to plan your expenses accordingly.

Also Read: Evolution of Credit Card in India: A Journey

To Conclude

Not using your credit card will not directly affect your CIBIL score at first. However, if it remains inactive, your issuer may reduce the limit or close the account. When this happens, it might affect your CIBIL score. Therefore, use your credit card regularly and check your CIBIL score periodically. Responsible usage can improve your credit score, helping you access more financial products.

FAQs

Can I close an unused credit card?

You can close an unused credit card, but consider the impact first. Closing your oldest account or reducing your available credit may increase your credit utilisation ratio and lower your credit score. Keep the card open if it supports your credit history and overall limit.

Will my credit score improve if I stop using my credit card?

No, not using your credit card does not improve your credit score. Prolonged inactivity may lead issuers to close your account or reduce your credit limit. If you wish to improve your score, you must maintain your credit account with small payments.

What affects your credit score the most?

Your payment history has the greatest impact on your credit score. Missing a payment by even 30 days can reduce your score. Paying your bills on time every month helps you maintain a strong credit profile.

What happens if I use 90% of my credit limit?

Using 90% of your credit limit creates a high credit utilisation ratio. This can lower your credit score, as lenders may see you as a higher-risk borrower.

How long can one go without using their credit card?

The amount of time it takes for an issuer to consider the card as “inactive” depends on the issuer’s company. However, on average, it is considered to be anywhere between 12 and 24 months of inactivity.

What does CIBIL score mean?

A CIBIL score is a three-digit number, typically between 300 and 900, that reflects your creditworthiness based on your credit history. A higher score indicates you are more likely to repay loans, while a lower score may signal higher lending risk. Lenders use this score to evaluate your eligibility for loans and credit cards.