Keeping a credit card you don't use can be a confusing and potentially harmful financial decision. It's important to understand the implications of holding an unused credit card, including potential fees, impact on your credit score, and overall financial health. In this article, we will delve into the question: Is it bad to keep a credit card you don't use?
Firstly, let's clarify what it means to keep a credit card you don't use. This refers to having a credit card in your wallet or wallet-less digital account but not using it for purchases or paying off any outstanding balances. The reasons for holding such cards can vary from forgetfulness to convenience, but they all have potential downsides.
One of the most immediate concerns with keeping an unused credit card is the risk of accruing unnecessary fees. Credit card companies typically charge annual fees, which are often waived if the cardholder has made at least one purchase within the past year. However, if you fail to make any transactions, these fees can add up over time. Additionally, some issuers may charge late fees or interest on unpaid balances if you fail to pay your bill on time. These charges can quickly eat away at any savings you might have gained by not using the card.
Another factor to consider is the impact on your credit score. While it's true that having multiple credit cards can help build a strong credit history and improve your score, having too many unused cards can actually harm your score. Each unused card contributes to your total credit utilization ratio, which is a key factor in determining your creditworthiness. A high utilization ratio can lower your score, while a low ratio can increase it. If you have several unused cards, your utilization ratio could be artificially high, leading to a decrease in your score.
Moreover, maintaining an unused credit card can lead to identity theft. If someone gains access to your physical card or digital account information, they could potentially use it without your knowledge. Even if you regularly monitor your accounts and report fraudulent activity promptly, the stress and inconvenience of dealing with a compromised card can be significant.
Lastly, holding an unused credit card can affect your overall financial health. If you're carrying a balance on an unused card, you're essentially borrowing money from the issuer at an interest rate. This interest can add up quickly, especially if you fail to pay the balance before the due date. Additionally, if you're unable to meet the minimum payment requirements, you could end up with a higher principal balance and more expensive debt.
In conclusion, while there may be some benefits to having a credit card, it's generally not advisable to keep one you don't use. The potential fees, negative impact on your credit score, and increased risk of identity theft are significant drawbacks. If you find yourself with an unused credit card, consider closing it out or transferring it to a secure digital wallet to minimize the risks associated with it.
However, there are exceptions to this rule. For example, some people may choose to keep a travel credit card as a backup in case of emergencies or for exclusive rewards programs. In such cases, it's essential to review the terms and conditions of the card, including any fees and benefits, and ensure that you're using the card responsibly.
In summary, whether or not it's bad to keep an unused credit card depends on various factors, including your personal circumstances and the specific card's terms. As a general rule, it's best to close unused cards or transfer them to a secure digital wallet to avoid unnecessary fees, damage to your credit score, and potential security risks.