Does getting a credit card and not using it build credit?

The Silent Power of an Untapped Credit Card: Building Credit Without Spending

We’ve all heard the advice: “Build your credit!” But what if you’re wary of debt or just starting your credit journey? Here’s a strategy that might surprise you: getting a credit card and not using it (or using it sparingly) can actually benefit your credit score.

This approach might seem counterintuitive. After all, isn’t using credit the point? While responsible credit card usage is crucial, simply having an open and inactive account works wonders behind the scenes. Here’s how:

1. A Longer Credit History: The length of your credit history is a significant factor in your credit score. The longer you have an account open and in good standing, the more reliable you appear to lenders. Even if you’re not actively using the card, its mere existence contributes to a positive credit history over time.

2. Lower Credit Utilization Ratio: Your credit utilization ratio is the percentage of available credit you’re currently using. A lower ratio signifies responsible credit management. By having an unused credit card, you automatically increase your available credit, thus lowering your utilization ratio even if you have other cards you use regularly.

3. A Safety Net for Emergencies: Life throws curveballs. Having an inactive credit card tucked away provides a financial safety net for unexpected expenses. Knowing you have access to credit in emergencies can offer peace of mind.

However, a few caveats come with this strategy:

• Annual Fees: Some credit cards charge annual fees. Choose a no-annual-fee card to avoid negating the benefits of an inactive account.
• Account Closure: Credit card issuers may close inactive accounts. Check your card terms and make a small purchase every few months to keep it active.
• Temptation: An unused credit card can be tempting. Practice disciplined financial habits to avoid falling into debt.

The bottom line? While actively and responsibly using credit is essential, maintaining an inactive credit card can be a powerful tool for building a strong credit history and optimizing your credit score over time. Remember, it’s about strategic financial management, not just spending.