Financial institutions are efficient when it comes to giving out credit cards to potential customers. In fact, it is highly likely that you have a significant number of credit cards yourself, some that you use, and others that you do not use. Since you typically only pay interest on any amount that you use, you may think that it is harmless to keep a credit card that you do not use. However, considering the variables ask yourself if you really need to have access to unused credit cards. Here are some answers that will help.
Why you Should Close your Unused Credit Cards
You will find that most credit cards have an annual fee attached to them, which is an expense that you will incur without any actual benefit. Furthermore, this annual fee may be linked to the perks on the card which you are not even enjoying. Considering these, you should get rid of the credit cards because they are a liability.
Why you Should Not Close your Unused Credit Cards
When you have more to gain than to lose by keeping a credit card, than you should not close your cards. For example, the perks that you receive for simply having the card may include freebies which make it possible for you to save from another angle. In that case, you should keep your card so that you can benefit from the freebies. You may only need to transact with it once a year to enjoy all the benefits it offers.
Your credit score is determined based on the total amount of credit that you have access to. This means that even that amount on the unused credit card is considered, no matter how small it may be. When you close an unused credit card, the credit limit is removed from the calculation and this could lead to you having a lower score.
Timing is Everything
After you have made the decision to close your card, when you close it becomes quite important. There are some things that you need to consider. To begin with, if you are in the process of applying for a loan, do not close your unused credit card as this will affect your credit history. Furthermore, consider what the card has to offer before you close it. If it has a high limit, then it would be better for you to keep the card open. The benefit to your credit score could far outweigh the costs. Finally, if you are making a turnaround in your finances, avoid closing all your unused credit cards at one. This would cause your utilizations to spike.
When you look at the information presented, you can now make a more informed decision. If you have a credit card with an annual fee that you can manage, then it is worth keeping the card open so that you can maintain your overall credit score. If you have had the card for an extended period of time, then it would be better to keep it open as it shows that you have a good credit standing. However, an unused car is not meant to add to your financial woes, therefore, if the card is costing you more than you can afford in fees, then you need to close it. This may have a bad impact on your credit score, but it does not mean that the card is worth keeping. Only keep the card if there is no cost attached to it, and when getting a credit card look out for the best no annual fee credit cards.