Do you have a credit card you’re not using? Think you’re being responsible by keeping it in a drawer so you won’t charge anything on it? It might seem like a sensible thing to do, but an unused credit card can actually carry a few risks. Here are some bad things that can happen, and how to protect yourself.
1. Decrease in your credit limit
You might not know it’s been decreased, and any balance you have will then mean a higher utilization rate—and that could hurt your credit score.
It could also mean that you might use that card for a purchase that exceeded the new, lower limit. If that happens, you might get hit with fees. A lot of banks will charge you for exceeding your credit limit.
2. Credit score drop
If you don’t use your card for a year or more, a lot of card issuers will just close your account. That can be a bad thing, because a closed account—even if it was in good standing and had no balance due—can lower your credit score. How much it hurts your score depends on a lot of factors, but the main one is how long you’ve had the account. If it’s one of your older accounts, it’s likely playing a big (positive) role in your score. But if it’s a newer account it will have less impact. Another major factor is how many accounts you have. If you have only a few and you close one, that will be more likely to impact your score than if you have 10 or 15 accounts.
3. Fraud, undetected
If you’re not checking statements regularly, you might not know that your account’s been compromised. Most banks will reverse fraudulent activity so that you’re protected from any charges or debits that you didn’t make. But if you don’t discover it for a long time, it might be too late for your bank to cover it.
You can protect yourself by keeping an eye on all of your accounts, even the for an unused credit card. Set a reminder to check your statement every month. You can also set up alerts in most accounts to get an email or text message if a charge exceeds a certain amount. That’s a great way to make sure you know right away if someone else is making charges to your account.