You may think that all those credit cards with zero balances you have stashed in your wallet should be an object of pride. After all you have access to all this plastic credit – yet you choose not to use it, citing better financial management.
BUT…guess what? All that unused plastic you have safely tucked into your wallet may be doing way more harm than good. You may think that by simply not using those those cards you aren’t harming your credit but they very well could be wreaking havoc on your credit score.
Personal finance experts will often recommend consumers have at least one credit card to be used in an emergency. They may also agree that allocating different cards for different purposes (ie: one for groceries, one for gas, and so on) is a smart way to earn rewards and track your expenses each month. While all of that advice may be smart for consumers to heed, it may mean that some of your credit cards rarely see the light of day. No matter how well you manage the cards you do use, the one you are not using could be negatively impacting your credit score.
Another drawback to unused cards are the potential expenses you are incurring each month or year. Some credit card issuers will be happy to charge you not only for having the card but also for not using the card. Inactivity fees are becoming a popular resource for card issuers to bring in some additional profits. You may think the small monthly fee for maintaining the card is small in the grand scheme of things but over time those fees add up. Consider what you could do with that extra $30, $40, $50 you are spending for no reason.
What About Safety?
If you have a credit card or multiple cards you never use, are you still checking your statements each month? You may think you are in the clear and are quick to shred your latest mailed credit card statement without even opening it because you know you haven’t been using it. But are you sure someone else isn’t using it?
Unless you are regularly checking all credit card statements monthly and credit reports annually, you may be doing an identity thief a big favor. You are essentially giving the green light for them to steal more and more from you. The fastest way to detect fraud is to review every line of your credit card statements whether you are using your card or not. You also need to check in with your credit reports at least annually to ensure someone has not opened other credit card accounts using your personal information. It happens all the time and yes, it could happen to you too.
What to Do Now?
If you have one or more credit cards you are not using, you need to consider your options. First understand what the consequences of your options will bring. For instance, here are some common scenarios:
- Close the credit card accounts you don’t use – this move will drop your credit score and change the ratios concerning your available credit. If you close the oldest credit account you have, you also screw up your overall credit history by changing the date credit was established. Your length of credit history is an important criteria involved in credit score calculations.
- You leave the card open and inactive – this (non)move may continue to cost you fees. There is also a possibility that the issuer will close the account for you, thus hurting your credit score even more.
- You keep the card and use it regularly – this move by far is your best option. You do not have to go spending crazy to make this card work for you but you can utilize it to make a few small purchases each month and pay the balance off in full at the end of the billing cycle. This will not only keep your account open and avoid inactivity fees you will also boost your credit score over time by showing proper credit card management.
In cases where you just have too many credit cards that are in effect hurting your credit score by the sheer amount of credit you have access to, you may have to consider closing accounts to save on fees and help repair your credit score. Too many accounts can signal to a lender that you do not know how to be responsible with your credit or that you are impulsive about applying for lines of credit. This can be potentially harmful should you ever need financing assistance in the future.
If you must close some accounts, be sure to keep the following tips in mind:
- NEVER close the oldest or even third oldest account you ever opened.
- ALWAYS be sure you cancel the credit card properly by following the protocol from the credit card issuer.
- NEVER close an account that still retains a balance or your interest rate may be raised considerably.
- ALWAYS continue to check statements on the account until the account is confirmed closed by the issuer to ensure the card has not been used fraudulently.
- NEVER forget to request written confirmation that you have closed the account and on what date the account was closed. You may also be able to ask your creditor to report back to the credit reporting bureaus that the account was closed due to customer’s request and check credit reports to ensure the account is showing as a zero balance.