Should I Activate a Credit Card I Don’t Use?

If you have a credit card but haven't used it, you might wonder if it's worth activating. After all, you applied for it with the intention of it being a safety net, right?

The truth is, a credit card that remains unused can actually harm your credit score. In the United States, people often focus on their credit scores, but having an unused line of credit can negatively impact this crucial metric. The logic is straightforward: the more lines of credit you have, the higher the risk of debt accumulation and financial strain.

The Dangers of Unused Lines of Credit

When you have a credit card or any other line of credit that you do not use, it introduces unnecessary risk into your financial profile. This is especially true for revolving credit lines like credit cards, which you do not pay off in full each month. The balances usually roll over, often accumulating interest, which can lead to significant financial strain.

Consider the scenario where you activate a credit card and go beyond your available credit limit. This action makes you appear risky to potential creditors, who will view you as a high-risk borrower. Moreover, making only minimum payments, even if these payments are made on time, can still present a red flag. These conditions can harm your credit score over time and make it harder to obtain future credit.

Why Lines of Credit Can Be Risky

The more lines of credit you have, be they term loans (such as mortgages), revolving loans (like overdrafts), or credit cards, the higher your credit risk. This is especially relevant when you only make minimum payments, which barely cover the interest and a small portion of the outstanding balance. In essence, having unused lines of credit can complicate your financial profile and affect your creditworthiness.

So, why should you avoid unused lines of credit? Here are a few reasons:

High Risk Perception: When you have an unused credit card, it's seen as a potential liability, increasing your perceived risk to creditors. Monthly Interest Charges: Even if you make minimum payments, these often cover only the interest, leaving a balance that accrues more interest. This cycle can lead to a growing debt burden. Credit Utilization Ratio: Your credit utilization ratio, which is the percentage of your available credit you're using, plays a significant role in your credit score. Keeping your credit utilization low is beneficial.

Alternatives to Consider

If you've received a credit card as part of a sales promotion, you might be tempted to activate it just to receive a discount. However, as Chris R from London astutely points out, these offers often have hidden costs. The discount may be applied directly to the next bill, and the card may not be used again, leading to an unused line of credit.

Instead of activating an unused credit card, consider closing it. This particularly applies to store cards, which can provide temporary perks but often lead to unused lines of credit and potential harm to your credit score.

Conclusion

In summary, if you have credit cards or other lines of credit that you do not use, it's generally best to close them. This action can help protect your credit score and reduce financial risks. Remember, your credit score is a critical factor in your overall financial health, and maintaining it is essential for future borrowing needs.

Always be mindful of your financial habits and seek to minimize unnecessary debt. By taking proactive steps to manage your lines of credit, you can build a stronger financial foundation and achieve your financial goals.

Keywords

credit card, credit score, dormant credit card