Even when you are not using a credit account, it can be tempting to hold on to your card for those “just in case” moments. After all, who doesn’t want a cash cushion in case of a financial emergency? Yet it is worth remembering that all our monetary activities can have an impact on our ability to secure lending, from credit cards to secured loans, both now and in the future. So knowing the right time and the right way in which to close unused credit accounts is an absolute must.
What an Unused Credit Account Says about You Information on your credit file is detailed and varied, but one thing that potential lenders are often interested in is how, why and when cards are utilised. There is a misconception that having no borrowing or taking out a card and never using it will reflect positively on a credit score, but this is simply not the case.
For many organisations, someone who has access to credit but does not or has not used it raises suspicions and concern. They may well come to the conclusion that this means you are something of an opportunistic borrower.
The most likely scenario is that prospective lenders will look at what is known as “utilization” on a credit account. Basically, they will be assessing as a percentage how much of all available credit is used on a monthly basis and how successfully this is paid back at each agreed interval. As an industry rule, companies will be hoping to see usage of around 25% or less on a card. There may not be an exact science behind this, but for lenders this is considered to be not too much and not too little but just right.
Of course, it must be noted that not all lenders will work in the same way. A credit score is not always a definite yes or no, and so whether you are looking at debt consolidation loans or considering a secured mortgage, talking honestly to your potential lender about your financial situation is to be advised.
How Closing Unwanted Credit Accounts Can Help You The statistics regarding online, identity and card fraud are frightening, and protecting yourself against the dangers of such damaging actions is essential. When you are not using a credit account, and your card is simply gathering dust, you leave yourself open to misuse in two ways. Firstly, if you do not know where your card is, how will you notice if it has gone missing? And secondly, you may not be aware of any activities on your card if you are not expecting them. Therefore, closing these accounts completely is the safest option.
Furthermore, it can sometimes be of benefit to you to play the bank’s game by closing an account in order to be recognised once more as a new customer. After all, lenders often put much of their marketing effort into drawing in new customers rather than looking after existing ones. One thing to be aware of here is the gap of time that you may have to wait between being considered an “old” customer and a “new” one, so bear that in mind before closing a credit account for this reason.
Don’t Believe What You See on TV
One key thing to remember when you are contemplating cancelling an unused credit account is this: simply cutting your card in two will not close down your account. If you are serious about ending a financial agreement, you must do so by phone or in writing to be certain that you are no longer liable for the account that was once yours.