Credit cards can be valuable financial tools, even when they are inactive. Knowing how long to keep an inactive credit card open can impact your credit score and overall financial health. In this blog, we will explore the reasons to keep an inactive credit card open, the potential downsides, and offer practical advice for managing your credit effectively.
Why Keeping an Inactive Credit Card Open Can Be Beneficial
Impact on Credit Score
Your credit score is a crucial factor in your financial life. It influences your ability to secure loans, mortgages, and even affects your job prospects in some cases. Here are a few ways keeping an inactive credit card open can benefit your credit score:
Length of Credit History
One of the factors that contribute to your credit score is the length of your credit history. This includes the age of your oldest account, the age of your newest account, and the average age of all your accounts. Keeping an older, inactive credit card open can lengthen your credit history, which can positively impact your credit score.
Credit Utilization Ratio
The credit utilization ratio is the amount of credit you are using compared to the total credit available to you. A lower utilization ratio is generally better for your credit score. By keeping an inactive credit card open, you maintain a higher total credit limit, which can help keep your credit utilization ratio low.
Potential Downsides of Keeping an Inactive Credit Card Open
Risk of Fraud
An inactive credit card can still be targeted by fraudsters. If you’re not regularly monitoring the account, you might miss unauthorized transactions. Regularly check your statements and consider setting up alerts for any activity on your inactive cards.
Fees and Charges
Some credit cards have annual fees. If your inactive card has such fees, it may not be worth keeping it open. Always weigh the benefits against the cost of maintaining the card.
Practical Tips for Managing Inactive Credit Cards
Regularly Monitor Your Accounts
Even if you are not using your credit card, regularly check your account statements to ensure there are no unauthorized charges. Set up online access and sign up for email or text alerts for any account activity.
Consider Product Changes
If your inactive credit card has an annual fee or doesn’t offer rewards that benefit you, consider contacting your credit card issuer to discuss a product change. Many issuers allow you to switch to a no-fee card or one that better suits your needs without closing your account.
Use the Card Occasionally
To keep the account active, consider using the card for small purchases occasionally. This can prevent the issuer from closing the account due to inactivity and can also help in keeping your credit history long.
Evaluate Your Overall Credit Strategy
Periodically review your credit cards and overall credit strategy. Ensure that your approach aligns with your financial goals. If keeping the inactive card open serves a purpose, such as maintaining a low credit utilization ratio or preserving a long credit history, then it makes sense to keep it open.
When to Consider Closing an Inactive Credit Card
High Annual Fees
If the inactive credit card has high annual fees that outweigh the benefits, it might be worth closing the account.
Unmanageable Number of Cards
If managing multiple credit cards becomes overwhelming, it might make sense to close one or more inactive accounts. However, be strategic about which cards you close to minimize the impact on your credit score.
No Longer Needed
If the credit card no longer fits your financial needs or you have better credit card options, it might be time to close the account. Just ensure that you have a plan to mitigate any potential negative impacts on your credit score.
Also Read: Axis Bank Credit Card Reward Points: Login and Redemption Guide
Conclusion
Deciding how long to keep an inactive credit card open requires careful consideration of your overall financial strategy and goals. Keeping an inactive card open can help maintain a healthy credit score by contributing to the length of your credit history and keeping your credit utilization ratio low. However, it’s essential to monitor for fraud and be aware of any fees associated with the card. By regularly evaluating your credit cards and overall financial strategy, you can make informed decisions that support your financial health.