Is it smart to open a credit card and never use it?

Is It Wise to Open a Credit Card and Leave It Unused?

Opening a credit card and refraining from using it may seem like a harmless decision. However, this practice can have unintended consequences for your credit score.

Impact on Credit Score

Credit cards are typically used to build or maintain a solid credit history. When you open a credit card, its payment history, utilization, and account age are reported to credit bureaus. An inactive credit card with no recent activity does not contribute to these factors and can negatively impact your score.

Dormancy and Removal of Payment History

Over time, an inactive credit card account may become dormant. Dormancy usually occurs after an extended period of inactivity, typically six months to a year. Once an account becomes dormant, any positive payment history associated with it is removed from your credit report. This removal reduces the length of your credit history and potentially lowers your score.

Unnecessary Credit Accounts

Opening multiple credit card accounts without intending to use them can damage your credit utilization ratio. Credit utilization refers to the amount of credit you are using compared to your total available credit. Opening a new account without using it increases your available credit but does not affect your current balance. As a result, your credit utilization ratio may increase, potentially negatively impacting your score.

Alternatives to Building Credit

If you want to establish or improve your credit score, opening a credit card and leaving it unused is not a wise strategy. Instead, consider the following alternatives:

• Secured credit card: This type of card requires you to provide a security deposit equal to your credit limit. By making regular payments, you can build a positive payment history and establish a credit score.
• Authorized user: You can request to be added as an authorized user on someone else’s credit card. Regular use and timely payments will benefit your credit history.
• Credit-builder loan: This loan is designed specifically to help individuals with limited or no credit history. You make regular payments towards the loan, which is reported to credit bureaus.

Conclusion

While opening a credit card and never using it may seem like a harmless move, it can hurt your credit score by reducing the length of your payment history, increasing your credit utilization ratio, and potentially leading to account dormancy. If you want to build or maintain a strong credit score, it’s best to avoid opening unnecessary credit accounts and instead opt for alternative methods that actively contribute to your credit history.