Does having a credit card but not using it build credit?

Does a Dormant Credit Card Help Your Credit Score? The Surprising Truth

Many believe that simply having a credit card is enough to build credit. This is a common misconception, and a potentially damaging one. While possessing a credit card is a prerequisite, it’s not a guarantee of credit-building success. In fact, the opposite can be true: a credit card that sits unused can actually hurt your creditworthiness.

The key to building a strong credit history isn’t just about having a card, it’s about using it responsibly. A credit card, like any other credit tool, works by providing a record of your borrowing and repayment habits to credit bureaus. These bureaus use this information to assess your creditworthiness, which in turn impacts your credit score.

So, what does responsible use entail? It goes beyond just opening an account. A vital element is consistent spending within your means. This means charging for legitimate purchases rather than simply accumulating debt. The most important factor, however, is making timely payments, and exceeding the minimum payment whenever possible. Paying only the minimum frequently leads to accumulating debt, increasing interest charges, and negatively impacting your credit score.

Strategic balance management is also crucial. Aim to keep your credit utilization (the amount of credit you’re using relative to your available credit) low. Ideally, aim for utilization below 30%. High credit utilization signals to the credit bureaus that you may struggle to manage debt, potentially leading to a lower score.

Importantly, inactivity can actively harm your creditworthiness. A dormant credit card, one that’s never used for purchases or payments, sends a clear signal to the credit bureaus that you aren’t a responsible borrower. This can result in a lower credit score and even negatively impact your ability to obtain future credit.

In summary, while a credit card is a tool for building credit, simply having it isn’t enough. It’s essential to use the card responsibly, making consistent, timely payments, managing balances strategically, and avoiding excessive credit utilization. Active and responsible card usage is the cornerstone of a positive credit history, and inactivity can have significant and negative consequences. Don’t let a dormant credit card become a liability.