This catchy little phrase is used by Capital One in their television advertisements. This basic question is designed to make you switch from your current credit card to a Capital One credit card because of all of the benefits they provide. I came across an article on MSN Money detailing the impacts of having a credit card that is never used. The author Jeremy M. Simon of CreditCards.com (not surprisingly) discusses why you should keep that unused account open and why you should start using the card. He begins his answer by saying “If your primary goal is maintaining your credit scores, you should leave that extra card open — but not unused.”
My question is why should our primary goal be maintaining our credit score. Shouldn’t our primary goal be something like, providing for my family in case of emergencies? or meeting the daily needs of my family without having to borrow money? In the article, one of the reasons for keeping the card open is for emergencies. I understand the emotional aspect of having a credit card for emergencies, but not the logic. If you have an emergency that you can’t cover with available finances, how does going into debt make sense?
The article continues by giving an example of debt-to-credit ratios, and shows how closing an unused account would drive that ration up. Being a math guy, I can agree 100% with the mathematics of the statement. However, there is more than one way to lower the debt-to-credit ratio. Ready? Pay down the debt! That’s right, you could leave unused cards open, or pay down the debt. As a matter of fact, if you pay off all of your debt, you could get rid of the credit cards and not impact the debt-to-credit ratio, because with zero debt, you won’t have a ratio.
Finally, the author at the very end of the article includes this statement “If you’ve been a responsible borrower, it’s unlikely that an account closure would have much impact.” The truth is maintaining your credit score has more to do with not carrying debt and when you do, making payments on time. Personally, I still like the cash system for most day-to-day expenses. It may not work for everyone, but it does for us.
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{ 2 comments… read them below or add one }
Wow, I was just thinking about the same thing while driving to work today. We are so obsessed with our credit score and being able to borrow to fund a spending spree or even an actual emergency, that we are never taught to be financially responsible. The bible is clear that debt = slavery, and we need to be better stewards of God’s money! We can’t be tricked into handling our money by the world’s methods.
Great post!
Khaleef,
Thanks for the comment. I am constantly amazed at how often people fall into the trap of emergency credit. Planning for a rainy day seems to be a thing of the past.