Most Australians have a series of bank accounts and credit cards that sit unused in their wallets or under their beds. You might have signed up for a bank account for a vacation, or obtained a department store credit card for a limited offer years ago. At first, neglecting unused financial products appears completely safe. Nevertheless, failing to manage these dormant accounts can harm your finances and financial standing in the long run. Closing unnecessary products is essential for everyone striving for effective personal banking.
How Dormant Financial Accounts Affect Your Credit Score
Negative Impact on Your Available Credit and Debt to Income
Having multiple open credit cards will automatically reflect poorly on your credit profile. Every financial institution considers total available credit when evaluating prospective borrowers. If there are several credit cards in your name, with all balances standing at zero, a lender may view you as a higher risk customer, which can seriously affect your ability to borrow in the future, especially when trying to obtain a home loan or purchase property.
Closing Versus Keeping Dormant Cards and Accounts
There is a widespread misconception stating that closing credit cards will instantly harm your credit score. The truth is that although closing an account reduces total available credit temporarily, long-term benefits outweigh the initial negative effect. Reducing your available credit limit will make you a more appealing prospect for lenders in the future.
Strategic Closures
It is critical for every person to evaluate their open accounts and make a strategic decision about which to keep and which to close. By cancelling unnecessary accounts, you reduce the number of products you have to pay monthly fees for, thus being able to focus only on those that are truly useful. You can utilise ING’s debt consolidation loans to close several others as a potential strategy.
Hidden Fees and Charges Associated With Dormant Accounts
Typical Fees Charged By Banks and Financial Institutions
Almost every bank charges monthly fees for using its account, regardless of your activity level. Most credit cards require yearly fees as well, which apply automatically every year. Despite your lack of interest or inactivity, you are still charged each month.
How Small Monthly Fees Add Up
Five dollars per month spent on an account that sits unused may not appear a lot. However, over five years, that sum turns into three hundred dollars wasted on nothing. If you neglect multiple bank accounts, that amount of money can seriously affect your finances, leaving you with a significant hole in your wallet.
Subscriptions and Hidden Costs Linked with Old Accounts
Unused financial accounts tend to hide recurring fees you have been paying all along. If you have linked some software subscription or streaming provider account to your old credit card, terminating that account automatically stops payments.
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When Is It Better to Leave an Account Active?
Reasons Why Old Bank Accounts and Credit Cards Might Be Helpful
Every old account may not be worthy of cancellation. If you have an old credit card with a perfect repayment record, it can positively affect your credit standing. Banks always take into account long-term credit repayment records, which can significantly improve your score.
Distinguishing Harmful and Beneficial Products
It is crucial to identify accounts which bring more profit than losses. Bank account with monthly fees, while holding zero balance, should definitely be closed. Conversely, an account with no fees which also contains the most extended credit history, should stay open to contribute to your score.
