At TPG, we are always looking for and working to earn welcome bonuses. Welcome bonus is the best way to quickly earn most points or miles. I usually follow a simple process: Once I get a welcome bonus, I start to win the next one. I follow this motto: Always make money.
But once you get a coveted welcome bonus on the card, you might wonder if you need to keep using it, if you can throw it into the sock drawer, or you should even consider closing your account.
Let’s check if you can (or should) stop using your credit card after you get a welcome bonus.
Can I stop using the card after receiving the welcome bonus?
This is a two-sided answer. The simple answer is yes, but is it? No.
While you might be interested in thinking: “I received a welcome bonus and therefore no longer need to use this card,” this thinking can negatively affect your credit score.
If you stop using the card, your account may become inactive, which may cause the bank to close your account. From a bank’s point of view, if you don’t use it, you may not need it. Unused accounts won’t make money either.
If you don’t use a card, the bank will have nothing to report to the credit bureau. This means you have less evidence that you can pay it back responsibly when its statement expires. This may cause issuers to worry about issuing new cards to you.
Additionally, if you only use your credit card to earn a welcome bonus and then ignore it, it can cause the issuing bank to break the bank, which can make it difficult to obtain a later card.
It must also be mentioned that if you choose to close your account after you receive a welcome bonus, the issuer may retract the points or miles you have earned. You also risk the issuer prevents you from getting a future bonus.
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A perfect example is American Express’s “Welcome Bonus Qualification Tool”. It notes that banks can not only evaluate your credit score, but also your past banking activities with AMEX to decide whether you can get a welcome bonus from your future credit card application. If Amex is sure you are an unpopular customer, it’s hard to change your mind.
If you decide not to use the card, you should still monitor your account. Since you don’t have a bill to pay, it’s unlikely that you’ll notice fraudulent fees on your card.
Related: Credit Card Fraud: How to Discover and Report
Reasons to keep your account active
The first and most important reason to keep the card open is that it helps maintain a good credit score, overall credit age and credit utilization. A good credit score can help you get approval for more cards, which means you can earn more welcome bonuses.
If the bank closes your card, then your risk:
- Poor credit utilization: Your credit utilization accounts for 30% of your credit score. This is a ratio that shows how many of the total credit you are using. Close your card account will reduce your total credit limit. Ideally, you want to keep your credit utilization below 30%.
- Lower your credit history: Your credit term accounts for 15% of your credit score, which will be lowered if your credit card account is closed.
These factors all play an important role in determining your overall credit score.
In addition to not reporting activity to the credit report, you should also be aware of other issues, such as the impact on the credit report if your account is closed.
Not only will your account stop aging (which means you won’t improve the time of your credit history), it may also leave a negative mark in your credit report if you list it as “issue closing”, which may hurt you when you apply for credit in the future.
Given all this, it’s worth keeping your credit card account active to improve your credit score and increase your chances of getting more welcome bonuses. It’s also worth keeping your account open to enjoy the benefits of your card.
Many cards that offer welcome bonuses come with privileges such as lounge access, elite status, companion certificate and statement credit. These benefits can provide hundreds or even thousands of dollars in value when used correctly, so they are motivated enough to keep your account open. If your account is inactive and the bank decides to close it, all these valuable benefits will be lost.
Additionally, travel and purchase protections for many credit cards only apply when you use the card to make a purchase, so you may need to book your next trip or make your next purchase on one of the cards to ensure these protections.
Having a credit card with travel protection is only useful if you use the card to pay for travel, and you can’t do that if your account is closed due to inactivity.
Additionally, to earn and redeeve points and miles, your account must be open and maintain a good reputation. If your account is closed due to inactivity, you may forfeit any rewards that come with the credit card.
Related: Debunking the credit card myth: Cancel card I don’t use the credit score that helped me?
How to keep your account active
If you want to keep your account active, just use a credit card.
But how to deal with the welcome bonuses for these new accounts? Purchasing on other cards won’t slow down the progress of bonuses? The simple solution is to use cards every once in a while to make small purchases.
For example, on cards that I don’t use often in my daily life, I set up a calendar reminder to inform me of going to buy coffee, a pack of gum, or reloading my Chick-fil-A app to make sure the card stays active.
You don’t have to make large purchases; small purchases are enough. You just want to show the bank the card you are using. And while charging once or twice a month does not guarantee that the bank won’t lower your credit limit or close your account, it does significantly reduce the risk.
When issuers close inactivity, there is no standard time range because each of them has their own set of rules.
Some may close after a few months, and some may close in a year. An easy way to prevent this is to charge small fees on all credit cards regularly.
Related: How to Avoid Using Credit Card Issuers to Avoid Redundant Signs
Bottom line
Once you receive a welcome bonus on your credit card, you may need to transfer to your new card immediately in order to get another welcome bonus. While you may be using the first credit card less, you must keep your account active.
Thankfully, you don’t need to use cards frequently or buy in large quantities. You can drastically reduce the amount of credit cards you use, but you shouldn’t stop using it altogether.
Related: TPG’s 10 Credit Card Commandments Rewards
