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Unused Credit Cards? Here are your choices for them.

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Closing out your unused credit cards is a decision that needs to be made only after you have all the facts. You need to weigh the options before you make a choice because both sides of the equation have side effects to your credit. While it is a good thing that you are not living completely off your credit card, not using them at all can mean that the issuer itself will close out your card.

To close or not to close

At first thought, it seems like if you are going to leave unused credit cards in your wallet then you should close them. That is not the case if you want to keep your credit score on the rise.  It can damage your credit score by closing out that unused credit card that is collecting dust in your wallet and here is why:

If you close out your longest active card, even if they are unused credit cards, you are going to lose your longest standing credit history. What this means is that it will look like your credit history is only as long as the next longest account on your credit. Issuers are not going to want to give you new credit without seeing previously established credit on your history.

Also the way that your credit is reflected on your report is altered. For example, if you have several accounts but only use one, you might see that 10% of your account is utilized.  However if you close any inactive unused credit cards accounts your utilization factor across your accounts could increase substantially as you have reduced your overall credit available.

The other end of the equation is to leave your unused credit cards open and inactive. The biggest problem with this is you are essentially making no money for the issuer, so they are going to either reduce your credit limit or shut down your unused credit card account altogether. They close your account and your credit score drops. You lose the credit history along with the account.

You could also be faced with inactivity fees. That is exactly what it sounds like, you are not making them any money so they are going to charge you a fee just for having an account – even if you do not use it. Most banks – including banks like Fifth Third, Bank Of America, and Citi – will charge an annual fee starting at around $19 and can vary depending on the bank.

So what should you do with unused credit cards?

Here is where your choices are simple. Use your card or lose it. If you want to keep your card and not risk an annual fee or a lowered credit level then use those normally unused credit cards. Now be reasonable here – Do not go out and just spend until your card is maxed out. Do not go into debt. All you need to do is use your card for something that you know you will have the money for on payday. Like gas for your car, for example, spend a small amount and pay it off as soon as you get your statement.

If you do decide that you really need to close out any unused credit cards, keep these tips in mind: Keep your oldest cards and your cards with the highest limit. Never close down any account right before applying for a loan.

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