Are Multiple Zero-Balance Credit Cards Ruining Your Finances?

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In the wild world of credit cards, it can sometimes be hard to separate fact from fiction. Whether you regularly pay off your credit cards at the end of each month or recently paid off your final installment on a large purchase, you may be left with several questions.

Some of the most common questions revolve around how having a zero balance will affect your credit. For instance, is it bad to have too many credit cards with zero balance?

Or is it better to close credit cards with zero balance? Join us to discover the answer to these questions and more as we explore the pros and cons of maintaining a zero-balance credit card.

Is It Bad to Have a Credit Card With Zero Balance?

Maintaining a zero balance on a credit card definitely isn’t the kind of thing that’s going to tank your credit. After all, it’s a lot better than having too high of an unpaid balance, which can mess up your credit utilization ratio.

Your credit utilization ratio, aka debt-to-credit ratio, is simply the amount of debt you owe compared to the total amount you have available. For instance, say you have two different credit cards, each with $5,000 in available credit. In this case, your total available credit would equal $10,000.

Now imagine that your outstanding balance on one card is $400 and your balance on the other is $600. So your total debt owed would be $1,000. Your credit utilization ratio would work out to 10% ($10,000/$1,000).

Should I Leave a Small Balance on My Credit Card?

Given that your credit utilization ratio accounts for 30% of your total credit score, most experts recommend keeping it under 30%. For the most impact on your score, shoot for a low ratio of between 1 - 9%, which may help your score slightly better than not using available credit at all.

But that doesn’t mean that you should never pay off your account in full. In fact, paying off your cards in full each month is actually the best way to improve your credit score.

This shows lenders that you’re able to both use your cards responsibly and have the means to cover any charges you make from month to month. Not to mention that it’s the best way to escape paying interest fees.

When is Having too Many Credit Cards With a Zero Balance a Bad Thing?

While paying off your cards in full each month can be incredibly beneficial to your credit score, what about maintaining a zero balance on multiple cards you never use? There are some situations in which this may not be the best play.

Too Many Cards Too Fast

Each time you open a new credit card, a lender will perform a hard inquiry on your credit, which can slightly lower your score. That’s why you should veer away from opening too many cards too quickly, as all those hard inquiry hits can add up fast.

For the sake of illustration, imagine a customer named Bob has racked up a large balance on a card with a high-interest rate. Looking for a way to save cash, Bob decides to apply for a card like the Capital One SavorOne Rewards Card, which comes with a 0% Intro APR on balance transfers for the first 15 months.

But then he discovers the Citi Simplicity® Card, which offers a 0% intro APR on balance transfers for the first 21 months, so he applies for that too. Feeling he’s on a roll, Bob continues applying for low-intro APR cards to spread out his balance.

What he may not realize is that all those hard credit inquiries are lowering his credit score as he begins to look increasingly desperate to potential creditors. Not to mention that the more he spreads out his balance, the more monthly payments he’ll have to keep up with.

The Dangers of Excessive Inactivity

Beware of keeping cards open that you never use for several reasons. The first is that if you aren’t regularly checking in on your cards and their balances, you may not realize you’ve been the victim of fraud until a great deal of damage has already been done.

Additionally, some lenders may have an inactivity period after which they’ll close a card that hasn’t been used for a certain amount of time. If you want to keep a card open, then making a small purchase from time to time (even if you pay it off immediately) is an easy way to prevent this from happening to you.

If My Credit Card is Zero Do I Still Have to Pay?

Even with a zero balance, credit card holders may still have to pay annual fees. For instance, consider a scenario involving a savvy traveler named Susan. She signs up for the Platinum Card® from American Express, spends $6,000 within the first 6 months, earns 80,000 Membership Rewards® points, and promptly pays off her balance. Next, she applies for the Chase Sapphire Reserve® card, spends $4,000 in the first 3 months, earns 60,000 bonus points, and again pays off her balance immediately.

While it appears Susan has gained substantial travel perks, she has overlooked the annual fees. Regardless of her zero balance, she must pay the $695 annual fee for the Amex Platinum Card and the $550 annual fee for the Chase Sapphire Reserve. Therefore, even with a zero balance, credit card payments may still be required due to annual fees.

Do You Still Have to Make Payments on 0% APR Cards?

Today, there are a lot of great credit cards out there that come with a 0% intro APR. The Blue Cash Everyday® Card from American Express, for instance, is available for no annual fee and comes with a 0% intro APR for both purchases and balance transfers, then a variable APR of 19.24% - 29.99%.

The Citi Custom Cash℠ Card is another great choice with no annual fee and the same great 0% 15-month intro APR on balance transfers and purchases, then a variable APR of 18.99% - 28.99%.

But it’s important to understand that no annual fee and 0% interest APR don’t mean you aren’t still responsible for monthly payments. While you won’t be charged interest on your balance during the intro period, you’ll still have to keep up with minimum payments.

It’s also important to note that balance transfers may also be subject to a transfer fee, even on cards that offer a 0% interest APR. For instance, the Amex Blue Cash card comes with a balance transfer fee of either $5 or 3% of each transfer, whichever is the greatest.

The Citi Custom Cash card, meanwhile, charges a fee of either $5 or 5% of the total amount of each transfer, whichever is the greatest. The bottom line is to always make sure you read the fine print.

Is It Bad to Close a Credit Card With No Balance?

Whether or not you should close a credit card after paying down the balance to zero is one of those questions that’s best answered on a case-by-case basis. Here are some things to consider.

Credit History

As long as the card doesn’t have an annual fee, you may be better off leaving it open, even if you don’t plan to use it often or at all. When it comes to your credit score, maintaining an account over a long period of time can look good on your credit history, which makes up about 15% of your total credit score.

Credit Utilization

Closing your account will also lower your total available credit, which can in turn lower your credit utilization ratio, which we discussed above. For this reason, you may want to consider leaving your card open even if you opt for a new one that you plan to use more regularly.

Annual Fee Concerns

As we learned above in the case of Susan, in some cases it’s not going to make sense to keep paying a high annual fee on a card you never plan to use again. In this case, it’s worth checking with the lender to see if they’ll let you downgrade your account to a different credit card with no annual fee. Many lenders do offer this option, especially if your old card is paid off and in good standing.

Debt Struggles

If you tend to struggle with the temptation not to use your card, even though you can’t afford the high interest rates, then it may be best just to cut your losses. While closing a credit card may initially affect your credit score for a few months, the ding will be far less significant than the penalties for late payments or overspending.

Conclusion

As you can see, there’s a lot to consider when it comes to managing your credit cards in a way that makes the most sense for your credit score. We hope this information has helped give you a better idea of what to consider when it comes to whether or not to keep your card open with a $0 balance.

But it’s worth reemphasizing that everyone’s situation is different. If you have any questions or concerns, don’t hesitate to reach out to a financial advisor or debt counselor near you.

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