Keeping a credit card open and not using it can be seen as a good financial practice, but there are some potential downsides to consider. Credit cards offer several benefits, including rewards programs, protection against fraud, and the ability to build credit history. However, if you have a credit card that you do not use frequently or at all, it may be better to close the account and avoid any associated fees.
One of the main reasons people keep unused credit cards is to take advantage of the rewards programs offered by banks. These programs can provide cash back, points that can be redeemed for travel, merchandise, or statement credits, and other perks. By keeping an unused credit card, you can continue to earn rewards without having to use the card regularly. However, if you do not use the card often enough to meet the minimum spending requirements, you may find that the rewards program is not worth the effort.
Another benefit of keeping an unused credit card is the protection it offers against fraud. If your credit card number falls into the wrong hands, the issuer will typically cover any unauthorized charges on your account. This can save you from significant financial losses if your card is used fraudulently. Additionally, many credit card companies offer zero-liability protection, which means they will not charge you for unauthorized transactions as long as you report them promptly.
Building credit history is another reason why some people choose to keep an unused credit card. Each time you make a payment on time, it helps to improve your credit score. A higher credit score can lead to better interest rates on loans, mortgages, and other types of financing. While having multiple credit cards with balances can lower your overall credit utilization ratio, which is also important for improving your credit score, it is essential to manage these accounts responsibly.
However, there are also potential downsides to keeping an unused credit card open. One of the main concerns is the risk of identity theft. If your credit card information falls into the wrong hands, it could lead to fraudulent charges on your account. Additionally, if you do not monitor your credit card statements regularly, you may miss a payment due date, leading to late fees and damage to your credit score.
Another drawback of keeping an unused credit card is the possibility of accruing annual fees. Many credit cards charge an annual fee, even if you do not use the card frequently. These fees can add up over time and result in a net loss if you do not use the card enough to offset the fee. Furthermore, some credit card issuers may close your account if you do not use it for a certain period, which could result in losing any accumulated rewards or benefits.
In conclusion, whether it is bad to keep a credit card open and not use it depends on your individual circumstances and preferences. If you enjoy the rewards programs, protection against fraud, and the opportunity to build credit history, keeping an unused credit card may be beneficial. However, if you do not use the card frequently enough to justify the fees and risks involved, it may be better to close the account and focus on managing your existing credit cards more effectively. It is essential to weigh the pros and cons and make informed decisions based on your specific needs and priorities.