If you have a credit card but never use it, what happens? This question is often asked by those who have recently obtained a new credit card or are considering getting one. Credit cards can be a double-edged sword, offering convenience and rewards while potentially leading to debt if not managed properly. In this article, we will delve into the implications of having a credit card and never using it.
Firstly, let's understand the basics of credit cards. A credit card is a type of payment card issued by financial institutions, allowing cardholders to borrow funds with which to pay for goods and services. These funds are paid back over time with interest, unless the balance is paid in full each month. The issuer of the card earns money through the interest charged on any outstanding balances.
Now, if you have a credit card and never use it, there are several potential outcomes:
1. No Debt Accrues: If you never use your credit card, no debt will accrue. However, this situation might not be sustainable in the long run. Unused credit limits are typically subject to fees or reduced credit limits, depending on the card issuer's policy. Some issuers may also close unused accounts after a certain period of inactivity.
2. Negative Credit Score Impact: Even if you don't use your credit card, the issuer may report the account to credit bureaus as an open account. This could affect your credit score negatively, as it shows that you have credit available but are not utilizing it. However, some issuers may choose not to report unused accounts, so this impact may vary.
3. Potential Fees: Depending on the terms and conditions of your credit card agreement, you may be charged fees for not using the card. These fees could include annual fees, late payment fees, or even charges for maintaining the account if it remains dormant for a certain period.
4. Potential Closure of Account: If you fail to make any transactions on your credit card for a set period, the issuer may close your account. This is common practice among issuers who offer promotional rates with limited periods. Closure of an account can result in a loss of credit history and potentially harm your credit score if other accounts remain open and active.
5. Risk of Fraud: Having a credit card without using it can increase the risk of fraud. If someone obtains your card number and CVV code, they could potentially make unauthorized transactions. It's essential to keep your card details secure and monitor your statements regularly to detect any suspicious activity.
6. Opportunity to Build Credit History: While it's true that unused credit cards won't help build credit history, having a credit card at all can benefit you in the long run. As you make payments on time and use the card responsibly, your credit score will improve, making it easier to secure loans and mortgages in the future.
In conclusion, having a credit card and never using it can lead to various consequences, including fees, a negative impact on your credit score, and the potential closure of your account. However, it's important to note that not using a credit card doesn't necessarily mean you shouldn't have one. In fact, having a credit card can be beneficial for building credit history and securing lower interest rates on loans. It's crucial to use your credit card responsibly, pay your bills on time, and manage your credit sensibly to avoid unnecessary fees and maintain a healthy credit score.