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Will a Credit Card with Zero Balance Hurt My Credit Score?

Credit Cards Without Balance1

The short answer to that question is no.  In fact, maintaining a credit card account with no balance (i.e. never using it to make purchases) can actually be a smart strategy because it enables you to take advantage of the credit building capabilities of credit cards without running the risk of incurring unsustainable debt.

You can even go as far as locking your card in a drawer or simply cutting it up, as long as your account has zero balance when you do so.

Why is Zero Balance Beneficial?

The value of this course of action is clear when you consider the information tracked by TransUnion, Experian, and Equifax – the nation’s three main credit bureaus – as well as the relationship between your credit reports and your overall credit standing.

Credit reporting agencies maintain information about how many credit card accounts you have, your aggregate available credit, your credit utilization ratio, whether or not you submit payments as agreed every month, and various other factors that speak to your financial health.

When you have an open credit card account that you never use, the credit bureaus will merely see that you have available credit that you don’t tap into.  And that, of course, means that your credit utilization is low, indicating that you aren’t desperate for credit in order to support unsustainable spending habits.  In other words, it will fill your credit reports with information that reflects favorably upon your financial responsibility on a monthly basis and therefore help you build credit.

For a zero balance credit card strategy to work, the card in question simply must not have an annual fee.  Otherwise, you’ll waste money while your account sits dormant.

Is it Better to Have Zero Balance at Month’s End or All the Time?

From a credit building standpoint, you’re better off making purchases with a credit card and paying for them in full by the due date than you are not using the card at all. While refraining from tapping into a card’s credit line does illustrate a certain measure of financial self-control, it doesn’t necessarily indicate that you’ll be able to pay back loans and lines of credit according to the terms of your agreements should you ever need to leverage debt.  Making purchases with a credit card and proving yourself capable of paying the right amount at the proper time at least gives financial institutions a track record of credit utilization and payment on which to base their estimates for future performance.

With that being said, not making purchases with plastic is unquestionably better for your credit standing than irresponsibly racking up debts that you cannot afford to repay. So, if your desire to maintain a credit card account with zero balance stems from a lack of trust in your own spending habits, then it’s certainly a wise decision.  But if you’re able to make purchases with credit without spending more than you normally would with cash, the convenience and credit building benefits of plastic are two prime reasons to do so.

Bottom Line

At the end of the day, you can rest assured knowing that maintaining a no balance credit card is a viable credit building strategy that will not hurt your financial situation.

What you do with your inactive credit card is up to you, but if you truly want to avoid temptation, you should consider simply cutting up your card.  If you do that, remember to note your account number in case you need to contact your issuer with any questions.  Don’t write down the card’s expiration date or CV number, though, because that information will enable you to make purchases online or over the phone.

Image: retrorocket / Shutterstock

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