In today's world, credit cards have become an integral part of our lives. They offer a convenient way to make purchases, pay bills, and even earn rewards. However, there is a common misconception that taking out a credit card and not using it can be detrimental to one's financial health. In this article, we will delve into the topic of whether it is bad to take out a credit card and not use it, and explore the potential consequences of such behavior.
Firstly, let us understand what happens when you take out a credit card and do not use it. When you apply for a credit card, the issuer conducts a credit check to determine your creditworthiness. This check involves evaluating your income, debts, and credit history. If you are approved for a credit card but choose not to use it, the issuer may still report your account to credit bureaus as open or unused. This could potentially harm your credit score if left unchecked for an extended period.
Now, let's examine the possible consequences of having an unused credit card on your credit score. Credit scores are calculated based on several factors, including payment history, credit utilization ratio, length of credit history, and types of credit in use. An unused credit card contributes to a high credit utilization ratio, which is the percentage of available credit being used. A high utilization ratio can lower your credit score, as it suggests that you are overextending yourself and may be riskier to lend money to.
However, it is important to note that having an unused credit card does not necessarily mean that you will suffer negative consequences. There are several scenarios where holding an unused credit card can actually benefit your financial health:
- Emergency Fund: Some people prefer to keep a small amount of cash on hand as an emergency fund. Having an unused credit card can serve as a safety net in case of unexpected expenses or emergencies.
- Rewards Programs: Many credit cards offer sign-up bonuses, cashback rewards, or points that can be redeemed for travel, merchandise, or statement credits. By keeping the card active, you can potentially earn these rewards without incurring any additional fees.
- Credit Protection: Some credit cards offer zero fraud liability protection, which means that if your card is stolen and used fraudulently, you won't be responsible for any unauthorized charges.
That being said, if you have an unused credit card and are not planning to use it anytime soon, it might be wise to consider closing the account. Closing an unused credit card can help reduce your credit utilization ratio and improve your overall credit score. Additionally, it can prevent you from accruing unnecessary fees, such as annual fees or late payment fees.
To close an unused credit card, simply contact the issuer and request to close the account. Be sure to read the terms and conditions of the closure process, as some issuers may require you to meet certain criteria before allowing the closure. It is also a good idea to verify that all outstanding balances are paid off before closing the account.
In conclusion, while it is not inherently bad to take out a credit card and not use it, it is essential to manage your credit cards responsibly. Keeping an unused credit card can have both positive and negative effects on your credit score, depending on your individual circumstances. If you decide to keep an unused credit card, ensure that you are aware of its benefits and potential drawbacks and take steps to protect your financial health by managing your credit utilization ratio and paying your bills on time.