Is it good to have open unused credit cards?

Is It Beneficial to Maintain Unused Credit Cards Open?

In today’s financial landscape, maintaining a strong credit profile is crucial. One aspect that contributes to a positive credit history is credit utilization, which measures the amount of credit you use compared to the total amount available to you.

For optimal credit health, it’s recommended to keep your credit utilization ratio below 30%. This means that if you have a total available credit limit of $10,000, you should aim to maintain a balance of less than $3,000 on your credit accounts.

While it may be tempting to close unused credit cards, it’s generally a better strategy to keep them open. Here’s why:

1. Length of Credit History:

Keeping older credit cards open extends your overall credit history, which is a significant factor in calculating your credit score. The longer your credit history, the more time you have to demonstrate responsible credit management, such as making on-time payments and avoiding high balances.

2. Lower Credit Utilization:

Even if you don’t use your unused credit cards, they still contribute to your total available credit. By keeping these cards open, you effectively increase your overall credit limit, which lowers your credit utilization ratio. A lower credit utilization ratio indicates to lenders that you’re not overextending your credit and are managing it responsibly.

3. Responsible Credit Management:

By keeping unused credit cards open, you demonstrate to lenders that you can handle credit wisely. Even if you don’t make regular purchases on these cards, consider setting up recurring small payments to show activity and avoid being flagged as inactive. This activity helps build a positive payment history and reinforces your responsible credit management habits.

4. Emergency Fund:

Unused credit cards can serve as a safety net in case of emergencies. If you suddenly face unexpected expenses and need immediate access to funds, having an available credit card with a low balance can be a valuable resource.

Best Practices for Managing Unused Credit Cards:

To maximize the benefits of unused credit cards, follow these best practices:

• Make small, recurring payments on each card to avoid inactivity.
• Monitor your credit reports regularly to ensure accuracy.
• Avoid closing oldest credit cards, as they contribute the most to your credit history length.
• Consider using unused credit cards for small, everyday purchases to earn rewards or cash back, but ensure you pay off the balance in full each month.

Conclusion:

While it may seem counterintuitive, it’s generally beneficial to keep unused credit cards open. By strategically managing these cards, you can extend your credit history, lower your credit utilization ratio, demonstrate responsible credit management, and have a safety net for emergencies. However, it’s crucial to monitor your accounts carefully and avoid excessive spending or accumulating debt.