Is it bad to have unused credit cards?

The Benefits of Keeping Unused Credit Cards

In the world of personal finance, it’s often assumed that minimizing credit card usage and eliminating unnecessary lines of credit is the best practice. However, when it comes to unused credit cards, the opposite may actually be true.

Contrary to popular belief, maintaining dormant credit cards, despite the potential clutter, can offer several advantages that can positively impact your financial standing. Here’s why it’s not necessarily a bad idea to keep unused credit cards:

1. Lengthen Credit History:

The length of your credit history is an influential factor in determining your credit score. Keeping unused credit cards open helps prolong your credit history, which can significantly boost your score over time.

2. Reduce Credit Utilization Ratio:

Your credit utilization ratio, which measures the amount of available credit you’re using, is another key factor in your credit score. Unused credit cards increase your total available credit, thereby lowering your utilization ratio and improving your overall credit score.

3. Provide Emergency Funds:

Unused credit cards can serve as a safety net in case of unexpected financial emergencies. Having a line of credit available, even if you don’t intend to use it, can give you peace of mind and prevent you from turning to high-interest loans or payday lenders.

When to Consider Closing Unused Credit Cards:

While keeping unused credit cards can be advantageous, there are certain situations where closing them may be a better option:

• Annual Fees: If an unused credit card has an annual fee, it may be worthwhile to close it to avoid unnecessary expenses.
• Security Concerns: If you’re concerned about unauthorized use or identity theft, it may be prudent to close unused credit cards to minimize your exposure to risk.
• Multiple Open Accounts: Having too many open credit accounts can potentially damage your credit score. If you have several unused cards, consider closing the ones with low credit limits or inactive account histories.

Conclusion:

Unused credit cards can offer unexpected benefits for your credit health. By maintaining dormant accounts, you can lengthen your credit history, reduce your credit utilization ratio, and provide yourself with a potential emergency fund. However, it’s important to weigh these advantages against the potential risks and consider closing unused credit cards if necessary. By carefully managing your credit, you can harness the benefits of unused credit cards while minimizing any potential drawbacks.