What is a Zero Balance Credit Card:
A zero balance credit card is a credit card that does not have an outstanding balance on it. The cardholder has cleared all the balances and is owing to nothing at the moment.
A thorough description of a zero balance credit card:
A zero balance credit card could also be a credit card that a customer signed up for, and was given approval but has never been used for a purchase. It is a credit that’s accessible to the customer for use at any time. The card has never been used for a purchase or is not used regularly.
Prior to the Credit Card ACT of 2009, zero balance cardholders were charged for inactivity( dormancy fee). With the 2009 ACT, dormancy fee is now considered illegal. However, zero balance cardholder can still be charged especially if the card has an annual fee.
An open zero balance card without an annual fee boost credit score for the cardholder. Utilizing your credit on the average is a major part of your credit score. Use your credit on a lower ratio with an unused credit line. You can have more than a credit card.
Credit Advantage of a Zero Balance Credit Card:
Let’s assume you have three credit cards, a zero balance credit card with #5,000 credit limit, another card with $1,000 balance and #4,000 credit limit and finally a card with #2,000 balance and #3,000 credit limit. From the above, your total credit utilization is $3,000, and your total available credit is $12,000. Now, the total ratio of your credit utilization is 25%. If you decide to close your zero balance card, your credit utilization ratio will automatically increase to 43 percent. You will be left with decreased available credit of $7,000.
Closing your zero balance credit card could as well affect your credit score. It could either go up or down depending on what the credit scoring models conclude after viewing your general borrowing habit. If it appears like you are about utilizing your remaining credit, it is a bad signal to other lenders and creditors.
Your zero credit card could eventually get canceled by your credit card issuer. That is if it lies dormant and not making profits. However, if you desire to have it open and still not in dept, you can make a one-off purchase with your card and clear the balance immediately. That way, you will have an on-time bill payment which aids your credit score.