Is it bad to have a credit card and not use it?

Is it bad to have a credit card and not use it?

Do you have a credit card but for whatever reason find yourself seldom using it? You may have wondered if this is actually a good or a bad thing, or if it can even impact your credit history.

The popularity of credit cards has been slipping in recent years. Australians have been cutting up credit cards in droves, with the number of accounts falling by half a million, according to the latest figures from the Reserve Bank of Australia. And those who still have credit card accounts open are using them more responsibly by paying down their debt.

If you’ve got a credit card and you’re not using it, here is everything you need to know:

What are the risks of having a credit card you don’t use?

There are some potential costs and credit score impacts you may be stung with if you don’t use your credit card.

Firstly, you may run the risk of your credit card provider closing your account due to inactivity. The actual time frame for this will differ per each card provider and should be in your credit card’s terms and conditions online. This can be an issue for your credit history, as closing a credit card – whether due to inactivity or by choice - may lower your credit score.

If you don’t notice your credit card has been closed due to inactivity, causing your credit score to drop, and you apply for financial products, you may not be approved, and rejection will further hurt your credit history.

Secondly, if your credit card carries an annual fee, you’re inadvertently paying a costly ongoing fee for no real reason. If you keep a credit card active that charges an annual fee, you may be paying a card provider potentially hundreds of dollars for a service you don’t use.

The biggest risk around having a credit card you don’t use is if you had an outstanding balance you weren’t aware of. By not making even minimum repayments and ignoring an outstanding balance, you may come to find this credit card debt has snowballed over the years through interest and fees.

Will not using my credit card hurt my credit score?

Your credit score should be mostly unaffected by your credit card inactivity. However, as mentioned earlier, if your account were to be closed due to inactivity this may hurt your credit score. Or, if you had an outstanding balance on your credit card and weren’t making repayments, this may reflect negatively on your report.

The way lenders and credit providers view your credit history is changing. Comprehensive credit reporting means that moving forward, your positive credit behaviours will be recorded and potentially boost your credit score. This includes paying bills on time, meeting minimum repayments on card balances and paying off your debts in full.

If you’re concerned your inactivity may impact your credit history, consider bolstering your credit report with positive activity.

Low-use credit card options

Perhaps you like the idea of having a credit card around but only using it for emergencies. Consider reviewing at the type of credit card you’ve chosen, so you can keep your plastic in your back pocket for one-off spends.

1. Low-rate credit cards. If you’re keeping a credit card around for emergencies, consider using one with a low purchase rate. This way if you do make purchases, you’re keeping your chance of growing debt low.

2. No annual fee. There are a multitude of credit card options on the market that don’t charge an annual fee. If you only use your credit card once a year, for example, consider cutting out the biggest ongoing expense you’ll be charged.

3. Buy now, pay later. If you like the idea of having access to funds you can pay off in part-payments, consider buy now, pay later alternatives, like Afterpay or ZipCo.

How do I close my credit card for good?

So, you’ve decided to close your credit card once and for all. But just because you cut up your credit card doesn’t mean your account is closed for good.

Follow these steps to ensure you’ve closed your credit card account once and for all:

  1. Pay your balance in full.
  2. Cancel or redirect any direct debits, such as utilities bills.
  3. Hop online or pick up the phone and call your credit card provider requesting to cancel the account. Request a confirmation email or letter once this has been actioned.
  4. If you have owed credit from the provider, ensure a refund is performed.
  5. Now you can cut up your credit card.

If you’re struggling to get on top of your credit card balance to close it for good, ASIC’s MoneySmart website recommends a few simple ways to pay down your debt.

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Learn more about credit cards

Should I get a credit card?

Once you've compared credit card interest rates and deals and found the right card for you, the actual process of getting a credit card is quite straightforward. You can apply for a credit card online, over the phone or in person at a bank branch. 

How easy is it to get a credit card?

For most Australians, there are no great barriers to applying for and getting approved for a credit card. Here are some points that a lender will consider when assessing your credit card application.

Credit score: A bad credit score is not the be all and end all of your application, but it may stop you being approved for a higher credit limit. If your credit score is less than perfect, apply for the credit limit that you need, rather than the one you want.

Annual income: Most credit cards have minimum annual income requirements. Make sure you’re applying for a card where you meet the minimum.

Age & residency: You need to be at least 18 years old to apply for a credit card in Australia, and most require that you are an Australian citizen or permanent resident. However, there are some credit cards available to temporary residents.

What should you do if your credit card is compromised?

Credit card fraud is a serious problem. If your credit card is compromised and you’re wondering what to do, here are a few precautionary steps to take.

Contact you credit provider – Get in touch will your credit card provider. If you feel your card has been compromised, you should be able to lock or block it.

Monitor your accounts – Keep an eye on your credit card accounts. Any unauthorised transactions could be a sign your credit card has been compromised.

Check your credit rating – It’s also important to check your credit rating, to ensure you’re not a victim of identity theft or some other financial mischief.

How do you use credit cards?

A credit card can be an easy way to make purchases online, in person or over the phone. When used properly, a credit card can even help you manage your cash flow. But before applying for a credit card, it’s good to know how they work. A credit card is essentially a personal line of credit which lets you buy things and pay for them later. As a card holder, you’ll be given a credit limit and (potentially) charged interest on the money the bank lends you. At the end of each billing period, the bank will send you a statement which shows your outstanding balance and the minimum amount you need to pay back. If you don’t pay back the full balance amount, the bank will begin charging you interest.

What should you do when you lose your credit card?

Losing your credit card is a serious situation, and could land you in financial trouble. Here is a simple guide detailing what to do when you lose your credit card.

Lock you card – Contact your provider and inform them about your lost credit card. From here lock, block or cancel your card.

Keep track of transactions – Look out for unauthorised credit card transactions. Most banks protect against fraudulent transactions.

Address recurring charges – If your card is linked to recurring charges (gym membership, rent, utilities), contact those businesses.

Check credit rate – To ensure you’re not the victim of identity theft, check your credit rating a month or two after you lose your credit card.

How do I apply for a credit card online?

Do you need a credit card to get a loan?

You do not need a credit card to get a loan, but you usually need to have a credit history. Without a credit history, a financial institution cannot assess your ‘credit worthiness’, or your capacity to pay off the loan.

If you don’t have a credit card, your credit history can reflect any record of paying off an asset. Without any credit credit history, you’re limited in the type of loans you can apply for. But you may be able to obtain a secured loan against an asset. For more information on improving your credit score, go here

How do you apply for a credit card?

You can apply for a credit card online, over the phone or in person at the bank. Once you’ve compared the current credit card offers, the application process is quick and easy. Before you get your application started, you’ll need to gather your personal information like proof of ID, payslips and bank statements, proof of employment and details of your income, assets and liabilities. To be eligible for a credit card, you’ll need to be an Australian citizen over 18 and earn a minimum of $15,000 each year. Once you’ve applied for a credit card, you should get a response fairly instantly. If your credit card application has been approved, you should receive a welcome pack with your new credit card within 10-15 days.

How to pay a credit card

There are a few ways to pay a credit card bill. These include:

  • BPAY - allows you to safely make credit card payments online.
  • Direct debits - set up an automatic payment from your bank account to pay your credit card bill each month. You can choose how much you want to pay of your credit card bill when you set up the auto payments.
  • In a branch.
  • Via your credit card provider's app.

How to get a credit card for the first time

A credit card can be a useful financial tool, provided you understand the risks and can meet repayment obligations.

If you’re a credit card first-timer, review your options. Think about what kind of credit card would suit your lifestyle, and compare providers by fees, perks and repayments.

Once you’ve selected a card, it’s time to apply. Credit card applications can generally be completed in store, online or over the phone.

When you apply for a credit card for the first time, you must meet age, residency and income requirements. As proof, you must also provide documentation such as bank account statements.

Can a pensioner get a credit card?

It is possible to get a credit card as a pensioner. There are some factors to keep in mind, including:

  • Annual income. Look for credit cards with minimum annual income requirements you can meet. 
  • Annual fees. If high fees are a concern for you, opt for a card with a low or $0 annual fee. 
  • Interest rate. Make sure you won’t have any nasty surprises on your credit card bill. Compare cards with a low interest rates to minimise risk.

How do you use a credit card?

Credit cards are a quick and convenient way to pay for items in store, online or over the phone. You can use a credit card as a cashless way to pay for goods or services, both locally and overseas. You can also use a credit card to make a cash advance, which gives you the flexibility to withdraw cash from your credit card account. Because a credit card uses the bank’s funds instead of your own, you will be charged interest on the money you spend – unless you pay off the entire debt within the interest-free period. If you pay the minimum monthly repayment, you will be charged interest. There are many different credit card options on the market, all offering different interest rates and reward options.

What is a balance transfer credit card?

A balance transfer credit card lets you transfer your debt balance from one credit card to another. A balance transfer credit card generally has a 0 per cent interest rate for a set period of time. When you roll your debt balance over to a new credit card, you’ll be able to take advantage of the interest-free period to pay your credit card debt off faster without accruing additional interest charges. If your application is approved, the provider will pay out your old credit card and transfer your debt balance over to the new card. 

How to get rid of credit card debt

  1. Calculate your debt. Credit card calculators make it easy to determine the repayments required to chip away at your debt in the shortest timeframe possible for your budget.
  2. Repayment plans. Take some time to formulate a credit repayment plan. Consider increasing your income, scaling back your lifestyle or refinancing.
  3. Talk to your credit provider. If you’re still struggling with your debt, give your credit provider a call. You may be able to come to a new arrangement.