If you've ever received a credit card as a gift, or perhaps even applied for one yourself, you might be wondering what happens if you get a credit card but never use it. After all, having a credit card can seem like a good idea, especially if you're looking to build your credit score or earn rewards points. However, there are several factors to consider when deciding whether or not to use a credit card that you've never used before. In this article, we will explore the implications of holding an unused credit card and provide some tips on how to manage it effectively.
Firstly, let's understand what happens to a credit card account when it is not in use. Credit card companies typically charge an annual fee for maintaining the account, regardless of whether or not the card has been used. This fee is usually around $30-$50 per year, although it can vary depending on the issuer. Additionally, if you do not make any transactions on the card, you may also face penalties for late payment of the annual fee. Some issuers may close the account if the balance remains zero for a certain period, which could result in a ding to your credit score.
Now, let's delve into the impact of having an unused credit card on your credit score. Your credit score is a three-digit number that represents your creditworthiness. It is calculated based on factors such as your payment history, credit utilization ratio, length of credit history, and the types of credit in your portfolio. If you have an unused credit card with a high credit limit, it could contribute to a high credit utilization ratio, which is a factor that negatively affects your credit score.
To avoid this, you should consider closing the unused credit card account. Closing an account can help reduce your credit utilization ratio and potentially improve your credit score. However, closing an account can also lower your average account age, which is another factor that affects your credit score positively. Therefore, it's essential to weigh the pros and cons before making a decision.
Another option is to transfer the unused credit card balance to a different card with a lower interest rate or no annual fee. This way, you can still benefit from the rewards program associated with the card while minimizing fees and maintaining a low credit utilization ratio. Alternatively, you can use the card for small expenses that would otherwise require cash, thereby keeping the account active without incurring additional fees.
It's also worth considering the potential benefits of having an unused credit card. For example, some cards offer extended warranty coverage or travel insurance, which can be valuable if you ever need them. Additionally, having a credit card can help build your credit history, which is crucial for future borrowing opportunities.
In conclusion, if you have an unused credit card, it's essential to evaluate its impact on your credit score and financial situation. While it may seem convenient to have a credit card available, it's important to manage it effectively to avoid unnecessary fees and maintain a healthy credit score. By following these guidelines, you can ensure that your unused credit card serves you well and doesn't detract from your overall financial health.