Will Not Using My Credit Card Affect My Credit Score?

Introduction Some individuals have asked themselves whether it is possible to have a poor credit rating when they do not own a credit card. Even though credit cards have been said to bring about financial problems, they are good tools if properly used. However, some may not possess a credit card or may rarely use the credit cards that they own. In this article, let’s find out how having active or no credit cards can affect credit scores and what to do if you don’t utilize credit cards.

How Credit Scores Work To begin with the effects of credit card usage on scores, let us first look at the composition of a credit score. The credit scoring models include the FICO scoring model and the VantageScore. They scrutinize data in your credit reports from the three major credit reference agencies including Experian, TransUnion, and Equifax. These scoring models assess aspects such as your payment history, credit card utilization rate, credit history, types of credit accounts, and credit new inquiries. Typically, the FICO score has a score between 300-850 while VantageScore has a score between 300-950. Credit ratings over 700 are regarded as good to excellent credit.

Can Not Using a Credit Card Hurt Your Credit Score? The fact that you have an open credit card and you seldom use it will not negatively affect your score. Provided your credit account is not in any way violating the credit reporting bureau’s rules, both length of credit history and credit limits help in improving your score. However, not using credit cards in the long run can affect credit mix and length, although, it is not a direct effect. However, this may reduce credit score compared to the responsible use of credit cards in the long run.

Understanding Credit Mix: Its Importance and Significance A portion of your credit score is the mixture of credit history that you have. It comprises Installment credit (mortgages, car loans, personal loans) and Revolving credit (credit cards). It is also important to have an open credit card account, even if it is inactive because it demonstrates the ability to handle different types of credits. Shutting your accounts may reduce the credit utilization, credit mix, and the number of accounts available. This could progressively reduce your credit score.

The Length of Credit History The longer the period of credit history, the better the picture that credit bureaus have of your ability to manage credit responsibly over the years. The use of credit cards is that it is always beneficial to maintain old credit card accounts even if they are not active and help to increase the length of credit history. Another factor that can be affected by closing the longest open credit card account is that it reduces the length of your credit history, which in turn reduces your score.

What to Do If You Do Not Use Credit Card If you decide not to open or use a credit card, you can take other steps to build your credit mix and history length.

• Consider opening a secured credit card: This option must be backed by a security deposit and provide credit information to the bureaus as a traditional credit card. It shows how revolving credit is used responsibly.
• Become an authorized user: Use an account that belongs to a family member or a friend with good credit standings and include you as their additional user. Your reports will indicate their credit history.
• Take out an installment loan: Let’s take a credit builder loan from a credit union or a community bank as an example. Timely payments should also be made to include a positive payment record on the credit reports.
• Check your credit reports: You should review your reports from each bureau at least once a year to make sure they are accurate about the length of your credit history and the credit mix. In this event, it is advised to dispute any errors with the bureaus.

Implication of having a Thin Credit File If you have never applied for credit previously, this means you have a limited credit history file. This proves to be unhelpful to scoring models when assessing risk. Those with thin credit files usually find it difficult to get credit approvals. It is better to have at least one open account (active or inactive) to increase the approval chances and interest rates of the file.

Evaluating the Benefits and Risks of Credit Card Usage Of course, there are still some drawbacks to using credit cards, for example, spending beyond the means or accumulating bills. However, using them moderately and paying balances off each month shows that one is in a position to manage the credit cards properly. Never use credit cards as a source of ‘free funds’ and only spend on items that you can pay for in cash. If these guidelines for the maintenance of the budget are followed carefully, the occasional utilization of credit cards will not be detrimental to credit health.

Conclusion Thus, not using existing credit cards will not directly go against your credit scores. The only way to have a positive impact on your history length and credit mix is to keep the accounts open and keep low balances in them. But, closing accounts or even having no account can negatively affect your score than using it responsibly. All the benefits and drawbacks of having a credit card should be taken into consideration before deciding whether to open one and use it. If you do not use them, there are other ways of building your scores that you should employ. It is also important to review your credit reports frequently. If you have further questions or concerns about credit and loans and how they apply to you, it is suggested that you consult a financial specialist.

Ready to boost your credit score? Call +1 888-804-0104 now for the best credit repair services near you! Our expert team is here to help you achieve financial freedom and improve your credit. Don't wait—get started today!