This is a must-read piece for the people who have two credit cards because the clouds of questions related to a credit card which loom over our head are infinite.
This is a must-read piece for the people who have two credit cards because the clouds of questions related to a credit card which loom over our head are infinite. Some people are clueless about the billing cycle while others have no idea about which credit card is best for them. Some people just go for a particular type of credit card because their friend or relative might also have it. However, it is not true. Different people have a separate need when it comes to finances and hence the type of credit card should be chosen to cater to those needs.
The problem with the credit card is that sometimes one is not enough. Once an individual starts using a credit card, s/he starts exploring more habits. However, in reality, credit cards can lead to financial clutter. Having more than one card diversifies an individual’s portfolio but having too many of them is not really a great idea. It affects your credit score.
Having a well-balanced credit card portfolio and maintaining it is a good thing. When you apply for a loan or another credit card, the lender judges you on your creditworthiness which is directly proportional to your credit score. But all of this only stands when you are able to maintain an array of credit cards.
Since the main aim here is to increase the total available credit, all those unused cards can help too. However, the only thing for an individual to worry about is the tenure for which the cards remain inactive. If the cards remain inactive for a long time, the credit history might get affected in a negative way.
The credit score depends on an individual’s credit utilisation ratio. Credit utilisation ratio stands for the percentage of available credit a person uses every month. If the credit is not used for a long time, the lender might assume the card inactive and may shut it. The time period after which an issuer decides to do this is different for every company.
According to a BankBazaar report, the credit card issuer is not required to keep the person informed about the status of his/her card. An inactive account is enough for them to close it without any notice. As the total available credit in your name decreases, your credit score gets affected as well, the report added.
The second thing which affects the credit score is the length of an individual’s credit history. For example, if an individual has held a card for a long period of time, but it has been inactive for most of the duration, then if the issuer decides to close the credit card, it will affect the credit history.
Since it is your oldest account, once it gets closed, the person will lose out on the benefits of his/her history and the credit score will fall. Hence, closing the oldest credit card is not the best of options. If that happens, it is bad for your credit history.