Is it bad to have a credit card and never use it?

The Perils of Unused Credit Cards: Impact on Your Credit Score

Maintaining an unused credit card may seem like a harmless decision, but it can have significant repercussions for your credit score. Here’s why:

1. Negatively Impacts Credit Score:

Payment history is a crucial factor in determining your credit score. When you fail to use your credit card, you lose the opportunity to establish a record of timely payments. This absence of activity can negatively affect your score, as inactive accounts may be closed due to inactivity.

2. Loss of Positive Payment History:

Regular card usage demonstrates your ability to manage credit responsibly. By making small, regular purchases and paying them off promptly, you can build a positive payment history. Conversely, an unused card provides no such opportunities, resulting in a loss of potential positive information on your credit report.

3. Account Closure:

Due to inactivity, many credit card issuers may close unused accounts after a certain period. This can further damage your credit score by:

• Reducing your available credit: Closed accounts reduce the total amount of credit available to you, which can increase your credit utilization ratio (the percentage of available credit you use). A high utilization ratio negatively impacts your score.
• Shortening your credit history: Closed accounts are removed from your credit report, which shortens the length of your credit history. Credit history is an important factor in determining your score.

Benefits of Strategic Credit Card Usage:

In contrast to unused cards, using your credit cards strategically can have positive effects on your credit score:

• Establish a Payment History: By making small, regular purchases and paying them off on time, you create a record of responsible payment behavior.
• Improve Credit Utilization Ratio: Strategic card usage keeps your credit utilization ratio low, indicating that you are not overusing your available credit.
• Increase Credit Limit: Over time, using your credit card responsibly can lead to an increase in your credit limit, which can also improve your utilization ratio.

Conclusion:

While it may seem convenient to keep an unused credit card, it can be detrimental to your credit score. To maintain a strong credit profile, it is essential to use your credit cards strategically. By making small, regular purchases and paying them off on time, you can establish a positive payment history, improve your credit utilization ratio, and increase your overall credit score.