Don’t toss that old credit card -- it could help you in more ways than one.
It’s one thing to have a credit card you only use for certain purposes, like travel. But if you’re holding onto a credit card that you truly never use, you may be tempted to cancel that card and free up that space in your wallet or drawer.
Canceling a credit card you don’t use absolutely makes sense when that card charges an expensive annual fee. But if that card isn’t costing you anything, here are a few reasons to keep it around.
1. You might help your credit score
There are different factors that go into calculating your credit score, and keeping an older credit card can help with two of them. The first is credit utilization, which speaks to the amount of available credit you’re using at once. You should keep your utilization to 30% or less to keep your score in favorable territory, which means that if your total credit limit is $10,000, you should never carry a balance in excess of $3,000. Keeping a credit card you don’t use could help you maintain a higher credit limit, thereby helping your utilization -- and your score.
Additionally, the length of your credit history plays a role in determining your credit score. If the card you’re thinking of closing is one you’ve held for a long time, then it’s smart to hang onto it, because in doing so, you’ll have a long-standing account helping to bring your score up.
2. You might struggle to replace that card
If you have a credit card you don’t use, you may be inclined to close that account and then apply for a new credit card with better terms or features, like a superior rewards program. But getting a new credit card isn’t a given, and if your credit score has taken a hit recently, you might struggle to get approved for one. Now, if your credit is solid, this shouldn’t be an issue, but do yourself a favor and check your credit score before making that decision.
3. You want protection in case an emergency strikes
Unplanned bills can pop up at any time. Your roof might start leaking, your car could break down, or you could get hurt and wind up with a series of medical bills following your injury.
You should already have an emergency fund with enough money to cover at least three months of essential living expenses to account for such bills, but not everyone has ample cash reserves. If you don’t have much or any money in savings, then having an extra credit card could serve as an added source of protection the next time a financial emergency strikes.
Of course, it’s always better to pay for unanticipated expenses in cash, or to charge them on a credit card but pay them off by the time your bill comes due. Carrying a credit card balance will cost you money in accrued interest, and it could also bring down your credit score by driving up your utilization. But in the absence of savings, a credit card that adds to your total credit limit could serve as a much-needed backup.
Remember, it almost never makes sense to pay an annual fee for a credit card you don’t use. But if that card doesn’t charge a fee, consider keeping it on hand. You don’t have to lug it around in your wallet all the time; just find a safe place to store it and know that it’s there when you need it.
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