07
Aug

unused credit card

Many of us have one or two rogue bank or department store credit cards that we opened at some point for some reason – a store discount, air miles or other bonuses – but have sat unused in a sock drawer or in the back of an overstuffed wallet for years.

Is it wise to cut up those cards or take an even more direct route and call and cancel the accounts?

Like everything related to your credit score, that depends. In some circumstances, putting a self-imposed freeze on your idle credit accounts can indeed be a healthy preventative measure in helping to control your finances and avoid digging a deeper hole.

But consider the positives that an active but unused account can also have on your overall credit rating. Of the factors that go into building your credit score, the longevity of your accounts can be just as important as your utilization ratio or the mix of accounts that go into your overall credit. Payment history comprises some 35 percent of a FICO credit score, and length of credit history is a 15 percent factor.

Leave Them Alone

An unused card, provided it has been paid off, poses no real negative to your credit score, and the longer an account is open and in good standing – no late payments and no revolving balances – that neglected account can still be a positive to your credit picture.

Also consider your overall utilization rate, which should ideally be less than 30 percent on any given card. Credit agencies pool the available credit resources of all of your cards, so if you cut up one or two unused cards, that can dramatically impact your overall credit utilization, and be a serious negative. And don’t get rid of a card that’s your only credit card, even if you’re trying to resist the temptation to spend.

Do be aware that creditors will occasionally examine your use of their cards and cancel the account due to inactivity, especially department stores who see that you’ve not made any purchases in months. These closures do not necessarily create a negative mark on your account, though making the occasional small purchase and paying it off might instead add some points to your overall credit picture.

Work With What You Have Already

Opening any new accounts will also set off credit inquiry alarm bells, so consider holding tight and managing the resources you already have.

If you’ve kept a credit card in a safe place just in case of a financial emergency, consider some other options to help avoid a downward spiral of new debt. Ask your existing bank or credit card company if you qualify for a more attractive APR interest rate, or even a credit limit increase – which can help cut your overall utilization score, and benefit your overall credit standing.

If you would like some expert insight on credit repair, we can help, as well.

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