Everybody has some accounts that remain unused in the end, while their associated credit cards stay in their wallets forever. And believe us, most people want to get rid of them, so they thing about canceling them as soon as possible. After all, why should they keep an old credit card that’s no longer useful?
Well, what if we told you that it can actually help you keep some old credit cards? We know, if the card has an annual fee, there’s no reason why you should keep it, no matter it’s tied to a savings account or a checking account, but on the other side, if it doesn’t cost you money, it actually pays to keep them, especially those with a high credit limit.
Ok, but does the whole process go?
The idea is simple: hanging on to those cards will improve your FICO score. Yes, even if you don’t use them for anything and just keep them in your wallet.
Basically, when it comes to calculating a credit score, there are five main components:
- Your payment history, which racks 35% of the score and indicated your likelihood of paying bills on time.
- Credit utilization ration, which racks 30% of the score and shoes to which extent you’re using the credit.
- Length of credit history, which racks 15% and shows the amount of time you had your accounts open.
- New credit accounts, which racks 10% and shows how often you rely on financing.
- Credit mix, which racks 10% and shows the various types of credit accounts you have open.
Now, the idea is simple: maintaining an old credit card will affect – in a positive way – two of these components: credit utilization and length of credit history.
Lenders will appreciate unused credit cards!
Credit bureaus like it when they see a history of consistency from borrowers, so if you keep a card with a good standing for a lot of years, they will appreciate it.
As for card utilization, it shows how much of the total credit you have you’re actually going to use at a specific point. This ration should be as low as possible, but if it surpasses 30%, your credit score will be seriously affected.
In a nutshell, it can be said that an unused card, with a generous credit limit, will definitely help you maintain the personal ration down. Pretty simple, isn’t it?
