Is It Bad to Open a Credit Card and Not Use It?

Opening a credit card and not using it often prompts questions about its financial implications. Many consumers wonder how this affects their credit health and financial standing. Understanding credit management, from scoring models to practical considerations, can clarify whether keeping an unused credit card is a sound financial strategy.

Impact on Your Credit Score

An open, unused credit card can positively influence your credit score by affecting several key factors. One significant factor is your credit utilization ratio, which measures the amount of revolving credit you are currently using against your total available credit. Lenders generally prefer this ratio to be below 30%, as a lower percentage indicates responsible credit management. Keeping an unused card open, especially one with a high credit limit, increases your total available credit, which in turn helps lower your overall utilization ratio, even if other cards carry balances.

The average age of your accounts also plays a role in your credit score. A longer credit history generally signals to lenders that you have more experience managing credit, which is viewed favorably. Therefore, retaining an older, unused credit card can extend the average age of your credit accounts, contributing positively to your score. Closing an old account, particularly your oldest, could shorten your average credit history and potentially lead to a temporary dip in your score.

The diversity of your credit accounts, known as your credit mix, can subtly impact your score. While not as influential as payment history or credit utilization, having a mix of revolving accounts like credit cards and installment loans demonstrates your ability to handle different types of debt responsibly. An unused credit card contributes to this mix.

Other Practical Considerations

Some credit cards come with annual fees, which can range from $50 to over $500. Paying an annual fee for a card you do not use represents a direct financial cost that may not be justified. Review your cardholder agreement to identify any such fees.

Unused credit cards can pose security risks if not properly managed. If a card is forgotten or unmonitored, it could become a target for fraud or identity theft, as charges might go unnoticed. Regularly checking statements for all open accounts and setting up account alerts are important steps to mitigate these risks. Physical theft of unused cards also presents a risk, emphasizing the need for secure storage.

Having available credit through an unused card can serve as a financial buffer. This accessible credit can act as a safety net for unexpected expenses, potentially preventing high-interest debt. However, credit cards are not an ideal substitute for an emergency savings fund, as relying on them can lead to accumulating high-interest debt if balances are not paid off quickly.

Navigating Unused Credit Cards

Deciding whether to keep or close an unused credit card depends on individual financial circumstances. Keeping a card open can be beneficial if it is an older account, contributing to a longer credit history and a favorable credit utilization ratio. If the card does not carry an annual fee, keeping it open provides increased available credit without additional costs. To prevent an issuer from closing an inactive account, consider making small, occasional purchases or setting up a small recurring charge on the card.

On the other hand, closing an unused card might be advisable in certain situations. If the card has a high annual fee that outweighs its benefits, or if managing too many accounts becomes burdensome, closing it could simplify your finances. While closing an account, especially an old one, can cause a temporary dip in your credit score due to changes in utilization and average age of accounts, this impact is often short-term. It is generally recommended to pay off any balance before closing an account.

Before making a final decision, consider contacting the credit card issuer. You might be able to negotiate a waiver of the annual fee, especially if you have a strong payment history. Alternatively, some issuers may offer a product change, allowing you to switch to a different card, often one with no annual fee, while retaining the same account history. This can be a way to avoid fees while preserving the positive aspects of the account for your credit profile.