Q: Do any credit card companies penalize you if you have zero balance on your card and haven't used it for a few months?
No. When the Credit CARD Act rode a wave of anti-bank sentiment into the law books, federal rulemakers used the Act's broad guidelines to ban a handful of industry practices that often penalized consumers for simple mistakes. Although the Federal Reserve Board banned inactivity fees for credit cards in August 2010, you're not off the hook for damage to your wallet if your account remains idle for more than a few months:
- Higher annual fees. Some banks revised their credit card terms and conditions to comply with the Credit CARD Act, without truly honoring the law's spirit. For example, a handful of cards now feature a sliding annual fee based on monthly or annual spend. While not an inactivity fee by definition, this service charge can hit your account for $35 or more if you're not careful.
- Forfeited rewards. Some rewards credit cards require you to meet spending threshold to keep your rewards points or rebate balances active. Stop using your card, and you could jeopardize your favorite benefits.
- Damaged credit score. FICO and other credit scoring companies will boost your credit score based on the age of your oldest account, your overall history with credit lenders, and your credit utilization across all accounts. Many banks will cancel a credit card account for inactivity after either 3 or 6 months, causing your credit score to plummet.
- Merchant penalties. If you leave some of your bills or holiday purchases on auto-pilot with help from an annual automatic billing agreement, a cancelled card can cause you some grief. A declined credit card on your utility bill could lead to a late payment penalty or an account maintenance surcharge.
Review your card's terms and conditions carefully to discover when you're at risk for extra fees or account cancellation due to inactivity. Better still, get in the habit of using each of your cards to purchase something extremely small once per month. Buying a pack of gum or a bottled water, then paying your statement in full each month, will prevent inactivity penalties while showing a positive trade history on your credit report.