Is it bad to have a line of credit and not use it?

The truth is, the answer can be both “yes” and “no.” Let me explain. Lines of credit (LOC) are financial tools that can either make or break your personal financial strategy, depending on how you manage them. Whether it’s a home equity line of credit (HELOC), a personal line of credit, or even a business credit line, there are a few important considerations to keep in mind when you decide to leave it untouched.

In fact, in many cases, not using your line of credit could actually benefit you in ways you didn’t realize. On the other hand, under certain circumstances, letting it sit idle could negatively affect your financial profile. So let’s dive into the real impact of having a line of credit and choosing not to use it.

Why You Might Want to Keep It Open but Unused

First, let’s talk about why it can be a good thing to leave your line of credit untouched. One of the key benefits of having an open line of credit is the effect it can have on your credit utilization ratio, which is one of the biggest factors affecting your credit score. Your credit utilization ratio is the amount of credit you’re using divided by the total credit available to you.

Here’s a simple equation for this:

| Credit Utilization Ratio | = | (Total Credit Used) / (Total Credit Limit Available) |

If you have a high credit limit across various credit lines (including unused ones), but you're only using a small fraction of it, your utilization ratio will be low. A low credit utilization ratio is generally favorable to your credit score. Credit bureaus and lenders typically like to see a utilization rate of 30% or lower. So, by not using your line of credit, you may actually help boost your credit score over time.

Additionally, if you leave your line of credit open and available, you always have a financial safety net. Emergencies or unexpected expenses can pop up when you least expect them. Having that unused credit gives you the flexibility to cover costs without having to scramble for other solutions.

Potential Downsides of Not Using a Line of Credit

Now, for the flip side. Just because you have a line of credit open doesn’t mean it will be there forever if you don’t use it. Banks and financial institutions can decide to lower your available limit or even close your line of credit if they see inactivity over an extended period. This can be a major blow, especially if you were relying on that line of credit for future needs.

Moreover, closing a line of credit reduces your total available credit, which in turn increases your credit utilization ratio. And as we discussed earlier, a higher utilization ratio can lead to a drop in your credit score. So, ironically, if you leave it unused for too long, you could face the exact opposite of what you were aiming for.

Balancing Use and Inactivity

A smart strategy, if you want to keep your credit line open without actively using it, is to make small, periodic transactions and pay them off quickly. This shows lenders that you are responsible, actively engaged, and not a risky borrower, which reduces the likelihood of your line being closed or your limit reduced.

Does an Unused Line of Credit Cost You Anything?

Another key question you might have is whether there are any financial consequences to not using your line of credit, such as fees or charges.

In most cases, lines of credit come with no maintenance fees, so simply having the line available won’t cost you anything as long as you don’t carry a balance. However, it’s important to check your agreement carefully because some lines of credit do come with annual fees or inactivity fees that could cost you money just to keep the account open.

Psychological Benefits: Peace of Mind

There’s also the psychological aspect of having unused credit. Financial peace of mind is a huge benefit of having an unused line of credit. Knowing that you have a financial buffer available can reduce stress in your life. Even if you never tap into it, just having that safety net can offer a sense of control and readiness for life’s unexpected financial turns.

But Does It Hurt Your Credit Score?

You might still be wondering, “But what about my credit score? Am I doing damage by not using it?” To recap, the answer depends on several factors, including whether the lender decides to close your account or lower your credit limit.

If your account remains open, then having an unused line of credit should not hurt your score—quite the opposite. If anything, it helps reduce your credit utilization ratio, as mentioned earlier.

But if the lender takes action and closes your line, your available credit decreases while your total debt remains the same, which raises your credit utilization rate and could lead to a lower credit score.

Conclusion

At the end of the day, having a line of credit and not using it isn’t inherently “bad.” In fact, it can be part of a smart financial strategy as long as you understand the potential risks. Keeping an unused line of credit open can boost your credit score, provide financial security, and offer peace of mind, but be cautious of any inactivity fees or potential closures from the lender.

To prevent potential downsides, a balanced approach is recommended: periodically use your line of credit to keep it active, while still maintaining a low credit utilization ratio. This way, you can reap the benefits without the drawbacks. If you’re strategic, leaving your line of credit unused could be one of the smartest financial moves you can make.