Credit cards are a convenient way to make purchases and manage finances. However, with the rise of digital banking and other payment options, many people wonder if they can keep their credit card open without using it. In this article, we will explore the pros and cons of keeping an unused credit card and provide some tips on how to manage your credit card usage effectively.
Firstly, let's understand why someone might want to keep a credit card open without using it. One common reason is for emergency expenses or unexpected costs that require quick access to funds. Another reason could be to build credit history or to take advantage of rewards programs offered by certain credit card companies. Additionally, some people may have multiple credit cards from different issuers, each offering unique benefits, and they may choose to keep one or more unused to take advantage of these benefits when needed.
On the other hand, there are several reasons why you might consider closing an unused credit card:
- Fees: Unused credit cards often come with annual fees, which can add up over time if you don't use the card frequently.
- Security Risks: If you lose track of your unused credit cards, there is a risk that they could be misused or fall into the wrong hands.
- Credit Score Impact: Each credit card you hold contributes to your overall credit utilization ratio, which is a key factor in determining your credit score. Having multiple unused cards can lower your credit utilization ratio, potentially improving your score.
- Potential Fraud: Keeping unused credit cards can increase the risk of fraud, as they are more susceptible to being compromised than actively used cards.
Now that we've covered the reasons for keeping and closing unused credit cards, let's discuss some strategies to manage them effectively:
1. Set Clear Goals
Before deciding whether to keep an unused credit card, it's essential to set clear goals for its usage. Do you plan to use it for specific rewards programs, or is it just a backup in case of emergencies? Determine your priorities and align your decision accordingly.
2. Regularly Review Your Credit Cards
Review your credit card statements regularly to ensure that you are not paying unnecessary fees or accumulating debt on unused cards. Make a habit of checking your statements at least once a month and compare them to your budget to identify any areas where you can cut back or optimize your spending.
3. Consider Closing Unused Cards
If you find that you are not using an unused credit card frequently or consistently, it might be worth considering closing it. This can help reduce the number of cards you carry, which can simplify your financial management and reduce the risk of fraud. However, before closing a card, make sure to read the terms and conditions carefully, as some issuers may charge fees for early closure or require a minimum balance to remain on the card.
4. Use Digital Tools for Tracking
There are numerous digital tools available that can help you track your credit card usage and manage your finances more efficiently. Apps like Mint, YNAB (You Need a Budget), and Personal Capital allow you to monitor your spending, set budgets, and receive alerts when you exceed your limits. These tools can also help you identify areas where you can cut back on unnecessary expenses and free up funds for more important needs.
5. Consider Alternatives to Credit Cards
If you find that you are not using a credit card frequently, consider exploring alternative payment methods. Digital wallets like Apple Pay, Google Pay, and Samsung Pay offer a secure and convenient way to make payments without carrying physical cards. Additionally, prepaid debit cards or gift cards can serve as a backup payment method in case of emergencies or for specific online transactions.
In conclusion, whether or not you should keep an unused credit card depends on your individual financial situation and goals. By setting clear goals, reviewing your statements regularly, considering alternatives to credit cards, and using digital tools for tracking, you can manage your credit card usage effectively and make informed decisions about whether to keep or close unused cards. Remember, the key is to maintain a healthy credit score and financial health by making smart choices about your credit card usage.