Why It Can Be a Good Idea to Keep a Credit Card That You Seldom Use

If you have a credit card that you rarely use, it might be tempting to close the account and simplify your financial life. However, before making this decision, it’s important to consider the potential negative impact on your credit score and overall financial health. Here’s why keeping a seldom-used credit card open could be beneficial in the long run.

Closing a Credit Card Can Hurt Your Credit Score

Your credit score is affected by several factors, and one of the key elements is your credit utilization ratio. This ratio is the total amount of credit you're using compared to your total available credit. A ratio below 30% is ideal for maintaining a strong score. If you close a credit card account, you lower your total available credit, which could raise your utilization ratio, potentially causing your score to drop.

Additionally, the average age of your credit accounts also plays a role. Closing an old account reduces the average age of your accounts, which can negatively impact your score.

Impact on Future Credit Applications

A drop in your credit score from closing a card could make it harder to get approved for other types of credit, such as a mortgage or an auto loan. Even a small dip in your score could result in higher interest rates or make you ineligible for loans.

Keeping the Card Open as a Safety Net

Even if you don’t regularly use your credit card, it’s a good idea to keep it open for emergency situations. Unexpected expenses, such as medical bills or car repairs, can arise at any time. Having an available credit line could help you manage these costs without scrambling for other funding sources.

Keep the Account Active

To prevent your card from being closed due to inactivity, consider making small purchases every few months or using it to pay a recurring bill. This ensures the account remains open, helping you maintain a low credit utilization ratio and a longer average account age.

Conclusion

While closing an unused credit card might seem like a way to simplify your finances, it could inadvertently harm your credit score and limit your access to credit in the future. By keeping the account open and using it sparingly, you can maintain a healthier credit profile, which can pay off in the long run when you need to apply for major loans or face an unexpected financial emergency.

🗒️ Answer

It's generally a good idea to keep a credit card that you seldom use open, as closing it can hurt your credit score. This can happen because your credit utilization ratio will rise (lowering available credit) and your average account age will decrease, both of which negatively impact your score. Closing a credit card can also affect your ability to get approved for future credit, such as mortgages or auto loans. Lastly, keeping the card open ensures you have a financial safety net if you face unexpected expenses.

To avoid the card being closed due to inactivity, use it occasionally for small purchases or a recurring bill.