Do You Need to Cancel Your Credit Card?

Knowing when to apply for a credit card, when to use it, how to pay it off and when to tuck it away in a drawer can be a complicated thing. Credit cards can be lifesavers for those in nasty situations, but they can also be akin to a bottomless black void that sucks in the naive and drowns them in debt. If you use your credit card as a safety net for every little expense, it might be time to examine your credit woes. But do you need to cancel your credit card?

First of all, credit cards which aren't used don't do any damage to your credit. Unless you pay an annual fee, you won't be charged anything for your inactivity. It is possible to have a credit card for twenty years, not use it, and suffer no consequences. However, you have to understand how credit cards work, and how credit cards affect your credit score.

Amount of Credit Available
When you apply for a loan or a line of credit, the lender will run a credit check. They will discover whether you have dilinquent accounts, how well you pay your bills, and how much credit you have available to you. Every credit card currently open under your name has a credit limit, which can be anywhere from a couple hundred dollars to several hundred thousand. The amount of credit available to you through credit cards can affect whether or not a lender extends credit.

Credit Card Payment History
A potential lender can also view your payment history and find out if you have any outstanding accounts. If you pay your credit card debt on a regular basis and keep a small or zero balance, then you're more likely to have credit extended to you. However, if you have multiple open credit card accounts but never have a balance on any of them, the lender may view this as a negative red flag. It shows the inability to manage your credit cards and your finances.