If you have a credit card but never use it, what happens? This question is often asked by individuals who have recently obtained a credit card or are considering getting one. Credit cards can be a double-edged sword, offering the convenience of instant access to funds and rewards programs, while also potentially leading to debt if not managed properly. In this article, we will delve into the implications of having a credit card but never using it.
Firstly, let's understand the basics of how credit cards work. When you apply for a credit card, the issuer (bank or credit card company) reviews your financial history, income, and credit score to determine whether you qualify for the card and at what interest rate. If approved, you receive the card in the mail, and you can start making purchases with it. However, there are no obligations to use the card immediately.
Now, let's explore what happens if you have a credit card but never use it:
1. No Debt Buildup: The most immediate benefit of having a credit card but never using it is that you won't accrue any debt. As long as you don't make any charges on the card, you won't have to worry about paying interest or fees. However, this doesn't mean you should keep the card unused indefinitely.
2. Negative Impact on Your Credit Score: While not using your credit card does not directly harm your credit score, it can have an indirect impact. Credit card companies report account activity to the major credit bureaus (Equifax, Experian, and TransUnion). If you have a credit card but never use it, it might appear to lenders as though you have available credit that you're not utilizing. This could lower your overall credit utilization ratio, which is a key factor in calculating your credit score.
3. Potential Cancellation of the Card: Some credit card companies may cancel your card if you do not use it for a certain period of time. This is usually done to free up resources and maintain a clean portfolio of active customers. However, many issuers have policies that allow unused cards to remain open without charging annual fees. It's essential to review your cardholder agreement or contact your issuer to understand their specific policy.
4. Missed Opportunities for Rewards and Benefits: Many credit cards offer sign-up bonuses, cashback rewards, or points that can be redeemed for travel, merchandise, or statement credits. By not using the card, you miss out on these potential benefits. Additionally, some cards offer additional perks like extended warranty coverage, rental car insurance, or price protection on purchases. These benefits are designed to encourage card usage and can add value to your purchases.
5. Potential for Fraud: If you have a credit card but never use it, someone else could potentially use it fraudulently. This could result in significant financial loss and damage to your credit score. Therefore, it's crucial to secure your card by keeping it in a safe place and regularly monitoring your statements for any unauthorized transactions.
6. Potential for Issuer to Close Account: If you have a credit card but never use it, the issuer might consider it a waste of resources and decide to close the account. This could negatively affect your credit score if you have other active accounts with the same issuer. Closing an account can also result in a hard inquiry on your credit report, which could temporarily lower your score.
Conclusion: While having a credit card but never using it has its advantages, such as avoiding debt buildup and negative impacts on your credit score, it's important to weigh these against the potential missed opportunities for rewards and benefits. It's advisable to use your credit card occasionally to take advantage of these benefits and maintain a healthy credit score. If you find yourself with a credit card that you're not using, consider closing it or setting up automatic payments to avoid unnecessary fees and protect your financial health.