Do you have a credit card you never use? This is what you can do with it

If you have a credit card but you have not been able to use it in a long time, then it is not uncommon. There are a number of people who sign up for credit cards for rewards, introductory offers, or emergency use—but later forget about them. However, leaving an unused card open isn’t always a casual decision. It may even affect your credit score, security and even your finances. 

So, what exactly should you do with that card you barely use? Here’s a set of tips to help you decide.

Does an unused credit card affect you?

1. Credit score: Even if you’re not using a credit card, it still plays a role in your credit profile. We explain how 

• Credit utilisation ratio: This is the ratio of your available credit divided by total available credit that you are using. Keeping an unused card with a high limit open can bring your credit utilisation ratio lower, which is good for your credit score. So, if you close the card, it will impact your credit score.
• Length of credit history: The age of your credit accounts is also vital. If the unused card is one of your oldest, then closing it can shorten your average credit history, negatively affecting your credit score.

2. Annual fees: Some credit cards, particularly premium ones, charge annual fees even if you do not use them. You might also face inactivity fees if your card stays unused for a long period. Check your card’s terms to see if it costs you money.

3. Risk of fraud: A card you rarely check may be an easy target for fraudsters. If your account details get compromised and you don’t happen to monitor transactions, then fraudulent charges may go unnoticed.

What are your options?

1. Keep it active: If the card has no fees and benefits your credit score, you may consider keeping it open. To avoid inactivity issues, you can use it for small, recurring payments such as subscriptions . You may also set up payment reminders to ensure you don’t miss due dates. It is recommended to monitor your statements for any unusual activity.

2. Downgrade to a no-fee version: If your card has an annual fee but you want to keep your credit history intact, you may check with your bank if it can downgrade to a no-fee version. 

3. Close it but carefully:  Before you decide to close it, remember to pay off dues. You should ensure that there is no remaining debt.

Also, you should make sure that you redeem unused rewards. Some cards have cashback, points, or miles that will be lost upon closure. You should notify the issuer and get written confirmation. It is advisable to call your bank to close the account and ask for a confirmation email or letter. It is recommended to ensure that the card is marked as closed.

You may want to cancel if…

A. It is your oldest credit card but has a high annual fee with barely any benefit.

B. It has no annual fee but you have quite a few credit cards to manage.

C. You’re worried about fraud risks since the unused credit card has financial consequences as well.

You may not want to cancel if…

A. You need the extra credit limit to keep utilisation low.

B. It offers perks such as lounge access or cashback 

To sum up, the best move depends on your situation. If it helps your credit score and costs nothing, then keeping it open with occasional usage makes sense. But if it is costing you money or adding unnecessary risk, then closing it responsibly is the smarter choice.

(Note: Using a credit card carries its own set of risks)