Does it hurt to have unused credit card? This question has been on the minds of many people who have accumulated a collection of credit cards over time. With the rise of digital wallets and contactless payments, some may wonder if they should close their unused credit cards or keep them open. In this article, we will delve into the pros and cons of having an unused credit card and explore whether it can potentially harm your financial health.
Firstly, let's understand what an unused credit card means. An unused credit card is one that has not been used for purchases or cash advances within a certain period. The length of inactivity varies from bank to bank, but typically, if you haven't used your card in 6 months or more, it could be considered unused.
Now, let's weigh the pros and cons of keeping an unused credit card:
Pros of Keeping an Unused Credit Card:
1. Financial Protection: One of the primary benefits of having an unused credit card is the potential protection it offers against fraudulent activity. If your card details are stolen, having an unused card reduces the risk of unauthorized transactions being made.
2. Credit History Preservation: Maintaining an unused credit card can help preserve your credit history. Lenders often look at your credit history when evaluating your creditworthiness. Having multiple active credit cards can show lenders that you are responsible with credit and can manage different types of debt.
3. Potential Rewards: Some credit cards offer rewards programs that can provide additional value to cardholders. Even if you don't use the card frequently, these rewards points can add up over time and potentially offset the cost of maintaining the card.
Cons of Keeping an Unused Credit Card:
1. Inactivity Fees: Some banks charge fees for having an account inactive for a certain period. These fees can range from $10 to $30 per year and can add up over time, especially if you have multiple unused cards.
2. Diminishing Credit Score: Each time a credit card is opened, it results in a hard inquiry on your credit report. While this doesn't directly affect your score, multiple inquiries within a short period can lower your score. If you have multiple unused cards, each one represents a potential hit to your credit score.
3. Potential Overuse: It's easy to fall into the trap of using an unused credit card just because it's there. This can lead to overspending and accumulating debt on the card, which can negatively impact your credit score and financial health.
4. Security Risks: Unused credit cards can pose security risks if they are lost or stolen. Even if you have set up alerts for suspicious activity, having an unused card increases the chances of unauthorized access to your account.
In conclusion, whether it hurts to have an unused credit card depends on various factors such as the number of unused cards, the associated fees, and personal financial habits. If you have multiple unused cards and consistently pay off your balances promptly, it might not significantly impact your credit score. However, if you find yourself unable to manage multiple cards or struggle with overspending, it might be wise to consider closing unused cards to simplify your financial life and reduce potential risks.
To make an informed decision, consider the following steps:
1. Review Your Credit Report: Check your credit reports regularly to ensure there are no errors or fraudulent activity. This will help you identify any unused cards and take appropriate action.
2. Evaluate Your Spending Habits: Analyze your spending patterns and determine if you can realistically use all the credit cards you have. If you find that you only use one or two cards regularly, consider closing the others to avoid unnecessary fees and maintain a clean credit report.
3. Consider Closing Unused Cards: If you decide to close an unused card, be sure to follow the proper procedures outlined by your bank. This usually involves contacting the bank's customer service department or logging into your online account to request closure.
4. Set Up Alerts: To protect your accounts, set up transaction alerts for your credit cards. This way, you'll be notified immediately if any unusual activity occurs, allowing you to take immediate action if needed.
5. Regularly Review Your Finances: Regularly review your financial statements and budget to ensure you are staying on track with your spending and avoiding unnecessary debt.
In conclusion, whether it hurts to have an unused credit card depends on individual circumstances. By understanding the pros and cons and taking proactive steps to manage your credit cards effectively, you can minimize potential harm to your financial health while maximizing the benefits of having a credit card.