Does having a dormant credit card affect your credit score?
Credit scores are crucial for individuals looking to borrow money, whether it’s for a mortgage, car loan, or even a credit card. One common question that often arises is whether having a dormant credit card can impact your credit score. In this article, we will explore the relationship between dormant credit cards and credit scores, and provide insights into how they may affect your financial standing.
Understanding a dormant credit card
A dormant credit card is one that has not been used for an extended period, typically for at least six months. It may have been canceled by the card issuer or simply not used by the cardholder. Despite not being active, a dormant credit card can still have an impact on your credit score.
Impact on credit utilization
One of the key factors that affect your credit score is credit utilization, which is the percentage of your available credit that you are currently using. If you have a dormant credit card with a high credit limit, it can potentially increase your available credit, thereby lowering your credit utilization ratio. This can positively impact your credit score.
However, if you cancel the dormant credit card, your available credit will decrease, which may cause your credit utilization ratio to rise. This could potentially harm your credit score, especially if you have other credit cards with high balances.
Age of credit accounts
Another factor that affects your credit score is the age of your credit accounts. Having a longer credit history can positively impact your score. A dormant credit card contributes to your overall credit history, as long as it remains open. If you cancel the card, you lose that history, which could negatively affect your score.
Monitoring your credit score
It’s essential to keep an eye on your credit score, especially if you have a dormant credit card. Regularly checking your score can help you identify any potential issues early on. You can use free credit monitoring services or sign up for a credit score tracking service to stay informed about your credit health.
Conclusion
In conclusion, having a dormant credit card can have both positive and negative effects on your credit score. While it may help lower your credit utilization ratio and contribute to your credit history, canceling the card can also increase your credit utilization and reduce your credit history. It’s essential to weigh the pros and cons before deciding whether to keep or cancel a dormant credit card. Regularly monitoring your credit score can help you make informed decisions and maintain a healthy credit profile.
