Is it good to have multiple unused credit cards?

The Sleeping Giants in Your Wallet: Are Multiple Unused Credit Cards a Good Thing?

We’re constantly bombarded with credit card offers, promising rewards and low introductory rates. It’s tempting to sign up for several, thinking more cards equal more opportunities. But is having a drawer full of unused credit cards actually beneficial, or is it a hidden detriment to your financial health? The answer, as with most financial matters, is nuanced.

The common wisdom points to the advantages of low credit utilization – keeping your credit card balances low relative to your credit limits. This is a significant factor in your credit score. Many believe that having multiple cards with high credit limits, even if unused, contributes to a lower utilization ratio, thereby boosting your score. This is partially true, but the picture is far more complex.

The problem lies in inactivity. While a high credit limit across multiple cards can positively impact your utilization ratio, prolonged inactivity on those cards can have a negative impact. Credit card issuers regularly report your account activity to the major credit bureaus (Equifax, Experian, and TransUnion). However, if a card sits untouched for an extended period – often six months or more – the issuer may decide to stop reporting that account’s activity.

This “closed account” effect, even if the account remains open, can significantly weaken your credit profile. A longer credit history, demonstrating consistent responsible credit management, is crucial for a strong credit score. Removing an account, even an inactive one, shortens your credit history and reduces the number of accounts reported, potentially lowering your score. Furthermore, the available credit associated with that card disappears from your credit report, which can subtly increase your credit utilization ratio on your active accounts.

The solution isn’t simply to use every card frequently, maxing out your spending. Instead, a more strategic approach is recommended:

• Strategic use, not overuse: Aim for at least one small, recurring transaction on each unused card every few months. This could be something as simple as a subscription service payment or a recurring bill payment of a few dollars. This keeps the card active and ensures continued reporting to the credit bureaus.
• Consolidate strategically: If you have several cards with low limits that you never use, consider consolidating them into one or two cards with higher limits. This simplifies your finances and can improve your overall credit utilization.
• Regularly review your cards: Periodically examine your credit card portfolio. Close accounts that are truly unnecessary and carry annual fees you’re not utilizing to offset.

In conclusion, while the allure of numerous credit cards with high limits is understandable, the reality is that multiple unused cards can be counterproductive. Active, even minimal, use is key to maintaining a healthy credit history and maximizing the benefits of your credit cards without the pitfalls of inactivity. A well-managed, smaller number of actively used cards often proves more advantageous than a large collection of sleeping giants in your wallet.