Is it good to have a credit card and never use it?

Navigating the Paradox of Dormant Credit Cards: A Guide to Maintaining Credit Health

In the world of personal finance, credit cards are often touted as both a boon and a bane. While they offer convenience and potential rewards, they also carry the risk of overspending and debt. So, what happens when you have a credit card but don’t use it?

The Negative Impact of Dormant Credit Cards

Contrary to popular belief, leaving a credit card dormant can actually harm your credit score. Here’s why:

• Lack of Payment History: Your credit history is a record of your on-time payments. When you don’t use your credit card, there’s no payment history to report. This can lower your credit score because it indicates inactivity and reduced reliability.

• No Accruing Benefits: Many credit cards offer rewards, such as cash back or travel points, for using them. By not using your card, you miss out on these valuable benefits, further reducing its value.

Responsible Credit Card Use vs. Alternative Strategies

If you want to avoid the negative consequences of a dormant credit card, consider these options:

• Responsible Credit Card Use: Use your credit card for small, regular purchases that you can pay off in full each month. This demonstrates responsible financial habits and helps build a strong payment history.

• Alternative Credit Building Strategies: If you don’t feel comfortable using a credit card, explore other ways to build credit, such as taking out a secured loan or becoming an authorized user on someone else’s account with a good payment history.

When to Cancel a Dormant Credit Card

In some cases, it may make sense to cancel a dormant credit card. Consider doing so if:

• You have multiple credit cards and don’t use one or more of them.
• The card has an annual fee that you’re not using.
• You’re concerned about its potential impact on your credit score.

Remember: Canceling a credit card can also lower your credit utilization ratio, which is the percentage of your total available credit that you’re using. This can slightly improve your credit score in the short term. However, if you close your oldest credit card, it can also reduce your average credit age, which negatively impacts your score.

Conclusion

The decision of whether or not to have a credit card and never use it depends on your individual circumstances and credit goals. If you’re responsible and intend to use it regularly, it can be a valuable tool. However, if you don’t plan on using it, consider alternative credit building strategies or carefully weigh the potential impact on your credit health. By making informed choices, you can harness the benefits of credit cards while avoiding the potential pitfalls.