A credit card is a financial product that allows you to borrow money from a lender in order to make purchases or withdraw cash. It is called a credit card because you are borrowing credit from the lender, which you must pay back at a later date. There is generally no harm in having a credit card that you do not use. There are a few potential drawbacks to take into account, though:
Does It Hurt To Have A Credit Card
- Credit card inactivity can lead to a lower credit score: Credit scores are based, in part, on the length of your credit history and the amount of credit you have available to you. If you have a credit card that you never use, it may not contribute to the length of your credit history or the amount of credit available to you, which could result in a lower credit score.
- Credit card fees: Some credit cards charge annual fees or other fees for having the card, even if you don’t use it. These fees can add up over time and may not be worth it if you are not using the card. It is possible for a credit card to charge fees even if you are not using it, although the specific fees that may be charged can vary depending on the terms of your credit card agreement. Some common fees that a credit card issuer may charge even if you are not using the card include annual fees, balance transfer fees, cash advance fees, and foreign transaction fees.
- Fraud protection: Credit card companies often offer fraud protection to their customers. If your credit card is not being used, you may not be as protected against fraud as you would be if you were using the card regularly.
- You risk having your account closed: It is possible that a credit card issuer may close an account if it is not being used. Credit card issuers generally want to see that their customers are using their cards and making payments on time. If an account is not being used, the issuer may determine that it is not a profitable account and may decide to close it.
Read More: How Do Credit Cards Work?
Bottom line:
Therefore, you should think about whether having a credit card you rarely use has more drawbacks than advantages. If you have a credit card but don’t use it, you may not be building a good credit utilization ratio. Credit utilization is the amount of credit you’re using compared to the amount of credit available to you. A low credit utilization ratio is generally considered to be a good thing, as it can show that you’re not maxing out your credit cards and potentially overspending. If you have a credit card but don’t use it, your credit utilization ratio will be zero, which may not be seen as positively by credit scoring models.
Overall, having a credit card but not using it can have both positive and negative effects on your credit score. It’s generally a good idea to use your credit card responsibly, paying off your balances in full each month and keeping your credit utilization ratio low. If you decide to keep the card, be sure to review the terms and conditions to understand any fees or other costs associated with having the card.