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Credit cards are categorised as unsecured debt. A credit card can be really handy to manage finances for responsible users. Credit card transactions can definitely make life easier with ready finance, but it also puts a responsibility on card users. One of these is making sure that your card isn’t declared dormant by the issuers. Banks closed approximately 2.9 lakh inactive credit card accounts in September 2022, following Reserve Bank of India (RBI) guidelines regarding the closure of inactive cards.
In this post, customers can go through the key aspects of a credit card dormant account. First, look at key benefits that make most individuals and business owners pay using their credit cards.
Key Benefits Of Credit Card
What is a Dormant Credit Card Account?
A dormant credit card account, also known as an inactive account, is an account without transactions for a specific period. If the cardholder doesn't use the card within a certain period, banks can declare it dormant and close the account. Customers should note that the RBI does not consider the service charges or interest debited by the bank as valid transactions to keep a credit card account active. If customers have left their credit card lying dormant for quite some time, the card provider charges a fee for account maintenance. Generally, the account maintenance fee is deducted from the savings account linked to the credit card.
What is the Purpose Of Declaring An Account Dormant?
Dormant accounts are segregated and maintained in separate ledgers by banks. It is a step to reduce the risk of fraud using a credit card.
When is a Credit Card Deactivated By The Bank?
There is no specific duration for which a bank waits before declaring a credit card account dormant. The period varies from institution to institution. While some credit card providers deactivate a credit card after six months of inactivity, others may wait for a period of up to twelve months.
Card issuers inform the customer before deactivating a credit card and grant them a few days to reactivate the card even after an extended period of inactivity. After a time when the cost incurred to maintain an account goes beyond the revenue generated, the issuer decides to deactivate a credit card and declares it a dormant account.
When Should Customers Deactivate Their Credit Cards?
A cardholder can consider closing their credit card accounts under many conditions and save on unnecessary dormant account charges. A few of conditions are mentioned below:
How Dormant Credit Card Accounts Impact Cardholder’s Credit Score
A dormant account decreases the cardholder's credit score and hinders further credit options. Credit cards come with a fixed credit limit. When the user makes any purchase using the credit card, the credit limit is blocked for that transaction amount and deducted from the overall credit limit on the card. The ratio of the used limit to the total credit limit is called the credit utilisation ratio. Experts suggest individuals keep this credit utilisation ratio below 30%.
Also Read: Facts to Know About Loans Against Credit Cards
How to Revive a Dormant Account?
In case a credit card is declared dormant by a bank, the customer can visit the bank to reactivate the account. They need to make a request in writing to the bank. Customers can mention that they have always paid the EMIs on time and have maintained a good credit score and have a spotless credit history. The issuer may ask for self-attested copies of the Permanent Account Number (PAN) card, identity proof, and address proof. The customer needs to initiate a transaction using the credit card and can expect account activation soon. However, it depends on the type of credit card and the bank’s credit policy. The activation period also varies from bank to bank.
Thus, apply for credit cards that are useful for personal or business purposes.. Having too many can make a customer's credit profile riskier and lead to dormant credit card accounts.
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