Is it bad to keep a credit card you don t use?

Is it bad to keep a credit card you don t use?

Is It Bad to Keep a Credit Card You Don’t Use?

If you have a credit card sitting in your drawer, unused and untouched, you might be wondering whether it’s wise to keep it or if it’s better to cancel it. This question comes up often for those trying to manage their credit responsibly while avoiding unnecessary fees or risks. Keeping an unused credit card can have both advantages and disadvantages, depending on your financial habits, credit goals, and the terms of the card itself.

In this article, we’ll explore all the important factors around keeping a credit card you don’t use. We’ll answer common questions based on what people are searching for online such as “Does keeping an unused credit card hurt your credit?”, “Can unused credit cards lead to fees?”, and “How does credit utilization work with inactive cards?”. By the end, you’ll have a clearer picture of what to do with those unused credit cards and how to use them as part of a smart financial strategy.

Understanding Why People Keep Credit Cards They Don’t Use

First, it helps to understand why many people hold onto credit cards even when they rarely or never use them. Some of the common reasons include:

• Maintaining a long credit history: Older accounts contribute to the age of your credit, which can positively impact your credit score.
• Keeping available credit limits high: More total credit can lower your overall credit utilization ratio, a major factor in credit scoring models.
• Backup payment options: Having a card available for emergencies or unexpected expenses can provide peace of mind.
• Rewards and perks: Even if you don’t use the card often, you might want to keep earning rewards, airline miles, or enjoy special cardholder benefits.

While these reasons make sense, there’s also a need to consider the potential drawbacks of keeping an inactive credit card.

How Does Keeping an Unused Credit Card Affect Your Credit Score?

Your credit score depends on several factors, with the most relevant here being credit utilization and the length of your credit history. Let’s break down the impact of an unused card on these factors.

Credit Utilization Ratio

Credit utilization refers to the percentage of available credit you’re using at any given time. It’s calculated by dividing your current credit card balances by your total credit limits. For example, if you have three credit cards with a $5,000 limit each (totaling $15,000) and your total balance is $3,000, your utilization ratio is 20%.

Keeping an unused credit card with a high credit limit can help lower your overall utilization because it adds to your total available credit. Lower credit utilization generally **improves your credit score** because it signals to lenders that you’re not overly reliant on borrowed funds.

Age of Credit History

The length of your credit history, including the average age of your accounts, makes up about 15% of your FICO score. Cards that you’ve held for many years, even if unused, help increase the average age of your accounts, which can be beneficial.

Closing an old credit card may shorten your credit history, which can sometimes cause your score to temporarily dip.

Credit Mix and Payment History

Creditors like to see a diverse mix of credit types (credit cards, loans, mortgages), but this is usually a smaller factor. Also, as long as you keep the card open without missing payments, it contributes positively to your payment history — the single biggest factor in your credit score.

However, simply keeping a card open without using it and missing payments on other accounts can still hurt your overall credit.

Potential Downsides of Keeping an Unused Credit Card

While keeping a credit card you don’t use often can be good from a credit perspective, there are some risks and disadvantages worth considering.

• Annual Fees: Some cards charge annual fees regardless of usage. This means you could be paying for a card you rarely use, which might not make financial sense.
• Risk of Fraud: An unused card can be a tempting target for fraudsters, especially if you don’t check your statements regularly. Unauthorized transactions might go unnoticed longer.
• Account Closure by Creditors: Credit card issuers sometimes close inactive accounts on their own, which could reduce your available credit unexpectedly and impact your credit score.
• Temptation to Overspend: While an unused card can be a backup, keeping too many cards open might tempt overspending or lead to debt accumulation.
• Impact on Credit Utilization if Closed: If you decide to close the card later, your total available credit decreases, which could increase your credit utilization ratio and potentially lower your credit score.

What Happens If You Cancel a Credit Card You Don’t Use?

Canceling a credit card is a big decision that can affect your credit health, so understanding the implications is key:

• Available Credit Decreases: Closing a card reduces your total credit limit, which can increase your overall credit utilization ratio if you carry balances on other cards.
• Possible Impact on Credit Age: Closing your oldest card can reduce your average account age, potentially lowering your score.
• No Further Fees (If Any): You stop paying annual fees or any other charges associated with the card.
• Less Exposure to Fraud: Once canceled, the card is inactive and can’t be misused by thieves.
• Less Temptation to Spend: Having fewer cards can help reduce impulse purchases.

Keep in mind, some people choose to downgrade to a no-fee version of their card instead of closing it outright, preserving credit history without the annual cost.

When Is It a Good Idea to Keep an Unused Credit Card?

Keeping a credit card you don’t use might be beneficial if:

• You have no annual fee on the account. If the card doesn’t cost you anything to keep open, it’s often worth maintaining for credit utilization and history.
• The card adds a significant credit limit. More available credit helps keep utilization low.
• You want to preserve the age of the account. Older cards help build a longer credit history.
• You check statements regularly. Monitoring the account for fraudulent activity reduces risks.
• You have a backup card in case of emergencies. It can be useful if your primary card is lost, stolen, or frozen.

When Should You Consider Closing an Unused Credit Card?

It might be time to cancel an unused credit card if:

• The card has a high annual fee that you no longer want to pay. Particularly if you don’t use the perks or rewards that come with it.
• You’re struggling to manage too many cards. Simplifying your finances can help prevent debt and mistakes.
• The card issuer is threatening to close your account due to inactivity. Getting ahead and closing it yourself might be better in some cases.
• You want to reduce your risk of identity theft or fraud. Fewer active accounts mean less opportunity for misuse.
• Closing the card won’t drastically impact your credit score. If the card has a low limit and is newer, the effect may be minimal.

How to Use an Unused Credit Card Wisely

If you decide to keep your unused credit card, here are some tips to maintain and benefit from it:

• Use it periodically: Make a small purchase every few months and pay it off right away to keep the account active.
• Set up alerts: Get notified of transactions so you can quickly spot any suspicious activity.
• Automate payments: To avoid missing due dates, automate at least the minimum payments.
• Monitor your credit reports: Check for signs of fraud or errors linked to your card.
• Review fees and perks annually: Make sure the card still aligns with your financial goals and isn’t costing you unnecessarily.

Common User Questions About Keeping Unused Credit Cards

Does an unused credit card hurt my credit score?

No, keeping an unused credit card open typically does not hurt your credit score. In fact, it can help by increasing your total available credit and supporting a longer credit history. Just be sure to monitor the account to avoid any negative surprises.

Will my unused credit card get canceled if I don’t use it?

Sometimes, yes. Credit card issuers can close dormant accounts after a period of inactivity, often after 12 to 24 months, though policies vary. Using the card occasionally can keep it active and open.

Should I cancel a credit card I don’t use?

It depends on your financial situation. If the card has no annual fee and helps your credit, keeping it open is usually better. But if it’s costing you money or causing confusion, canceling may make sense.

How often should I use an unused credit card to keep it active?

Using the card once every few months—such as for a small recurring purchase like a subscription or a minor grocery trip—is enough to keep the account active and demonstrate responsible use.

Does canceling a credit card immediately hurt my credit?

Canceling a credit card can impact your credit score by reducing your available credit and possibly shortening your credit history, but the effect is often temporary. Over time, your score can recover if you keep other accounts in good standing.

Tips for Managing Multiple Credit Cards

Many Americans have more than one credit card, which can be both beneficial and challenging. If you have multiple cards, including some unused, consider these management tips:

• Create a tracking system: Use apps or spreadsheets to monitor balances, payment due dates, and rewards.
• Set autopay: Avoid missed payments by automating at least the minimum payment on all cards.
• Assess the value of each card: Review the annual fees, interest rates, rewards programs, and benefits annually to keep only the cards that fit your needs.
• Use cards selectively: Assign certain cards for specific types of purchases to maximize rewards and simplify record-keeping.

By managing your credit cards intentionally, you can minimize risks of unused cards while maintaining their benefits.

Related Articles

• Is it bad to have a lot of credit cards with zero balance?
• Is it bad to keep a credit card you don’t use?

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