Keeping an Unused Credit Cards Good or Bad? Let’s Understand

Keeping an Unused Credit Cards Good or Bad? Let’s Understand

Credit cards have become an inextricable part of our daily lives, whether you're a student or a working professional, this financial tool has found its way into practically everyone's wallet. According to a poll conducted by a credit card company, credit card payments account for around half of all internet transactions. The majority of us are enticed to add credit cards to our wallets by majority of company’s enticing incentives to increase their market share. However, we eventually realize that we haven't been using these cards and are tempted to close the accounts that aren't being used. Also there are a variety of reasons why we may have unused credit cards. It might be a 0% purchase card that we don't use anymore because the promotional period has finished, a debt transfer card that has been paid off, or a reward card that we no longer use.

So now the real question arises as to what you should do with all these Unused Credit Cards that are stacked in your wallet. Therefore in this blog we will answer all your questions related what you should do if you have Unused Credit Cards.

How many Credit Cards can be determined as too many?

The number of credit cards you should have is determined by your needs, financial situation, and how you intend to use them. Remember that different cards are better for different things, such as paying off debts, spacing out purchases, earning rewards, or spending abroad.

The more credit cards you have, will ultimately lead to:

  • The greater the desire to spend beyond your means, the more likely you are to do so.
  • The more difficult it is to maintain track of repayments and account management, the more difficult it becomes.
  • the greater the chance of a fraudulent use
  • the greater the chance of misplacing them or forgetting passwords or PINs

Thus you should keep the above mentioned factors in mind before acquiring numerous Credit Cards, without giving a second thought as to what effect it can make on your financial situation in future.

Do unused credit cards close on their own?

If you don't use your credit card for a year or more, your account may be closed by the issuer. In fact, one of the most prevalent causes for account cancellation is inactivity. When your account is inactive, the card issuer receives no revenue from merchant transaction fees or interest if you have a balance.

For how much can the Credit Cards be kept as unused?

After a period of inactivity, there are no hard-and-fast industry regulations or standards for when or even if a lender would close your account. You shouldn't be concerned if you leave your credit card inactive for a month or so, but if you want to avoid a surprise account closure, you should inquire about your credit card issuer's policies.

What to do if you have Unused Credit Cards?

Is it better to cancel or maintain unused credit cards? There is no one-size-fits-all solution, and there are a number of variables to consider. Cancelling a card, for example, could:

Reduce the possibility of fraud

An open account that you rarely check on may be more exposed to fraudsters posing as you in order to make purchases in your name.

Reduce your chances of being approved for credit

It's a good idea to demonstrate to lenders that you can properly handle many credit accounts, as this may indicate that you're a dependable borrower. So, depending on what the lender is looking for, cancelling a long-held card could put you at a disadvantage.

Is it true that cancelling a credit card has an impact on your credit score?

First and foremost, you must realize that you do not have a single score. When you apply for credit, each lender will give you a score, which they will calculate in their own way. Typically, they'll consider information from your application form and credit report, as well as whatever information they have on you if you've previously been a customer. As a result, cancelling a credit card may have an impact on your credit score, but it all depends on the lender. One reason your score may suffer is if your overall credit utilization rises. The percentage of your credit limit that you use is referred to as credit utilization.

The lower your credit usage score, the higher your credit score and rating will be. The main reason for this is that it shows that you haven't been maxing out your credit cards and that you've managed to pay off your credit limit and outstanding obligations. The quantity of accessible credit is immediately affected by closing your credit card account.

 Let's look at an example situation to better understand credit use and its effects on your credit score and rating. Assume you have two credit cards, one with a credit limit of AED 2000 and the other with a credit limit of AED 3000, giving you a total credit limit of AED 5000. Now, if you have a total outstanding debt of AED 1000 on both of your credit cards, your account's credit usage rate will be 20%. If your outstanding debt of AED 1000 is larger on the card with a maximum of AED 3000, you may close the other one. As a result, your total credit limit will be reduced to AED 3000 from AED 5000, while your credit usage will increase to 33 % from 20 %.Because Credit Utilization Rate (CUR) accounts for 30% of your credit score, this shift in your CUR will have a negative impact on your overall credit score.

How should you cancel Unused Credit Cards?

The most important thing to remember is to notify the card company, either by phone or in writing, and to make sure you've paid off or transferred your most current statement first. You can't simply stop using a card by breaking it up into pieces, cancelling direct debits, or not using it at all this could result in missed payments, putting you at danger of a default. If you don't use your card for an extended period of time, your provider may send you a letter stating that it will be closed unless you tell them otherwise. Once you've indicated you want to cancel your card, the issuer may try to maintain you as a customer by giving advantages or an alternative card as an incentive to stay. Some folks may even call to try to get a better bargain on purpose! Consider the benefits, but if you're confident you want to cancel your card, go ahead and cancel it.

Is it possible to close a credit card account that has a balance?

You won't be able to formally cancel a credit card if you still owe the card company money. You can cancel it, but the provider will leave it open (and displayed on your credit record) until it is paid off. You can, however, transfer your credit debt to another provider's balance transfer credit card. You might be able to acquire a balance transfer offer on an existing unused card in some instances. To apply for a new card, you'll need to get a credit check, which will appear on your credit report as a hard search.

Situations in which keeping your Unused Credit Card can be good for you

Are there any circumstances in which keeping your unused credit cards can be advantageous? Yes, there are times when keeping your unused credit cards can be beneficial. If you're looking for a mortgage or any other form of loan, this method will most likely come in handy. Keeping unused credit cards on hand will help you keep and reflect a good credit history and score, increasing your chances of having a loan accepted. You can simply analyze your credit history, score, and locate the oldest functioning account. When you're intending to close an old account that would have a negative impact on your credit score, this method will come in handy.

If you've been tempted to use your credit card, simply put it in a location where it'll be tough to obtain. Second, self-control and discipline are essential for avoiding overspending. You may avoid excessive spending and keep a healthy credit score by developing the appropriate habits. You can change your payment method to cash to avoid damaging your credit score.

Conclusion

Therefore we can conclude with the fact that Unused Credit Cards should be disposed off if necessary, rather than just stacking up in your wallet or shelf. Before you close your account, make sure you conduct a comprehensive study of the account's age and credit limit. If used carefully and correctly, credit cards can be a constant companion throughout your financial path. Incorrect and reckless use, on the other hand, can have major consequences that can harm not only your financial well-being but also your credit score and rating.

By Om Chaudhary

10-Jun, 2021

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Credit Card Related FAQ

Frequently Asked Questions

  • How to Apply for a Credit Card?

    You can apply for credit card online by visiting Dhanguard and selecting type of credit card as per your requirement. We will further assist you with the process and requirement as per your requirements.

  • What is the eligibility Criteria for Credit Card in UAE?

    According to the UAE Central Bank regulations, any individual should earn a minimum salary of AED 5,000 per month to be considered eligible for credit card. Also, the Debt Burden Ratio of the consumer should not exceed 50%, to be eligible for a credit card.

  • What is the late fees applicable on late payment for Credit Card?

    Late payment fees are charged by banks if the minimum payment due on a credit card is not received on or before the payment due date. It vary from bank to bank but is generally about AED 250 per month.

  • What is Sharia Compliant Credit Card?

    As per the Shariah law, some banks in the UAE offers Shariah Compliant Credit Cards. This type of Islamic credit card stringently follows shariah principles that charges profit rate instead of interest rate as Riba is sternly prohibited as per the Islamic law. Though, Shariah Islamic credit card works similarly like a traditional credit card but with minor difference in the offered benefits.

  • What are the features of Credit Card?

    The credit card has a fixed credit limit, grace period, annual percentage rate, annual fees and bifurcation in offered benefits.