Is it bad for my credit score to not use my credit card?

Impact of Inactive Credit Cards on Credit Score

Maintaining a healthy credit score is crucial for accessing loans, mortgages, and other financial products at favorable terms. One aspect that contributes to your credit score is the utilization of your available credit.

Understanding Credit Utilization

Credit utilization refers to the percentage of your total available credit that you use at any given time. High credit utilization can indicate to lenders that you are relying heavily on credit, which can be seen as a potential risk. Aiming for a credit utilization ratio below 30% is generally considered ideal.

Impact of Inactive Credit Cards

While inactive credit cards may not immediately damage your credit score, they can hinder its development in the long run. When you don’t use a credit card for an extended period, it becomes less active on your credit report. This means that the data associated with that card, such as your payment history and credit limit, becomes less relevant in determining your credit score.

As a result, inactive credit cards can contribute to a “thin” credit file, which refers to a lack of sufficient credit history. A thin credit file makes it more difficult for lenders to assess your creditworthiness and may result in a lower credit score.

Addressing Inactive Credit Cards

Therefore, if you have inactive credit cards that are not beneficial to your credit score, you have two options:

1. Maintain Open Card: If the inactive credit card helps maintain a low credit utilization ratio, you should consider keeping it open. This can be particularly beneficial if you have other active cards with high balances.

2. Close Account: If the inactive credit card is not positively impacting your credit utilization or if you have concerns about fraud or overspending, it may be better to close the account. This will remove the card from your credit report and prevent it from becoming a liability.

Conclusion

Inactive credit cards can potentially hinder your credit score by reducing the visibility of your credit history and contributing to a thin credit file. If an inactive card is not beneficial to your credit, it is advisable to either maintain it open to manage your credit utilization or close the account to avoid any potential risks. By carefully managing your inactive credit cards, you can protect your credit score and ensure its long-term health.