Is it bad to have credit cards you don't use?

The Silent Drain on Your Credit Score: Unused Credit Cards

We live in a world saturated with credit card offers. The alluring promises of rewards points and 0% APR often lead to a bulging wallet, overflowing with plastic we rarely, if ever, use. But is having a drawer full of dormant credit cards truly harmless? The answer, surprisingly, is no. While you might think leaving those cards untouched protects your finances, they could be subtly sabotaging your credit score.

The key culprit is credit utilization ratio (CUR). This vital metric, a cornerstone of your creditworthiness, represents the percentage of your available credit that you’re using. Lenders view a low CUR – ideally below 30%, and even better below 10% – as a sign of responsible credit management. This signals to them that you can handle your debt effectively and are less likely to default.

Here’s where those unused credit cards come into play. While they don’t directly contribute to your debt, their mere existence impacts your available credit. Let’s say you have five credit cards, each with a $1,000 limit, totaling $5,000 in available credit. If you only use one card, and charge $500, your CUR is 10% ($500/$5000). However, if you cancel four cards, your available credit drops to $1,000, and that same $500 charge suddenly represents a 50% CUR – a significant red flag for lenders.

This seemingly minor shift can have a tangible impact on your credit score. A higher CUR can negatively affect your score, even if you pay your balance in full every month. This is because the algorithms used to calculate credit scores prioritize low utilization, irrespective of actual debt. Inactive cards, therefore, contribute to a higher overall available credit, potentially diluting the positive impact of your responsible spending on your active card.

Furthermore, some credit bureaus might even consider inactive accounts as negative factors over time. While not universally true across all bureaus and scoring models, prolonged inactivity can sometimes lead to the account being considered less favorable.

So, what’s the solution? It’s not necessarily about using every card every month. A simple, periodic transaction – a recurring subscription payment of a dollar or two, or even a small purchase followed by immediate repayment – on each card can keep them active and prevent them from negatively impacting your CUR. This “keep-alive” strategy ensures the cards remain in good standing without significantly affecting your spending habits.

In conclusion, while unused credit cards might seem innocuous, they can quietly undermine your credit health. Understanding the mechanics of credit utilization and employing simple strategies to maintain card activity can make a considerable difference in safeguarding your financial standing. Don’t let those sleeping giants in your wallet become silent saboteurs of your credit score.