Does having an unused credit card hurt your credit?

The Sleeping Giant: How Unused Credit Cards Can Affect Your Credit

Many people believe that an unused credit card is harmlessly tucked away in their wallet, like a financial security blanket. But while simply not using a credit card generally won’t hurt your credit score, the truth is a bit more nuanced. A dormant card isn’t inherently bad, but it can become a sleeping giant, potentially impacting your credit in unexpected ways.

The key distinction lies between an unused card and a closed card. Simply leaving a card unused, while making no purchases, typically doesn’t negatively impact your score directly. Your credit report reflects your credit history, including available credit and credit utilization (the percentage of available credit you’re using). An unused card contributes to your overall available credit, which can actually be beneficial. Lower credit utilization is generally seen as a positive sign by lenders, indicating you’re not over-relying on credit.

However, the danger lies in inactivity leading to account closure. Credit card issuers often close accounts that remain inactive for extended periods, typically a year or more. This is where the trouble begins. Account closure can negatively impact your credit score in a few ways:

• Reduced Credit History Length: The length of your credit history is a significant factor in your credit score. Closing an older account can shorten your credit history, potentially lowering your score, especially if it’s one of your oldest accounts.
• Increased Credit Utilization: When an account is closed, the available credit associated with that card disappears. This can suddenly increase your overall credit utilization ratio, even if your spending habits haven’t changed. A higher utilization rate can signal higher risk to lenders and negatively affect your score.
• Impact on Credit Mix: Having a variety of credit accounts (credit cards, installment loans, etc.) demonstrates responsible credit management. Closing a credit card, particularly if it’s your only revolving credit account, can negatively impact your credit mix.

So, what should you do with those unused credit cards? The simplest solution is to use them occasionally and pay the balance in full and on time. Even a small recurring charge, like a streaming subscription, can keep the card active and prevent closure. Just be sure to set up automatic payments to avoid accidental late payments.

Alternatively, if you truly don’t want or need the card, contact the issuer to see if they have a policy for inactive accounts. Some issuers may allow you to keep the account open even without regular use.

In conclusion, an unused credit card isn’t inherently harmful. The potential for damage lies in the possibility of account closure due to inactivity. By understanding the nuances of how unused cards can impact your credit, you can take proactive steps to maintain a healthy credit score and avoid any unpleasant surprises.