Sock-drawering unused credit cards: a good move?

Have a card you no longer want to use? Instead of closing the account, you might consider removing it from your wallet and putting it in a safe place.

This practice is often called “sock-drawering,” the figurative (sometimes literal) sock drawer being the safe place your cards hang out while they’re on hiatus.stack of credit cards

In addition to slimming down your wallet and keeping tempting cards out of sight, sock-drawering can be a good move for your credit – as long as you keep a few things in mind.

Why sock-drawering makes sense

As far as credit strategies go, putting cards in the sock drawer instead of closing them is “actually very smart,” says John Ulzheimer, credit expert with Credit Sesame. Here’s why:

  • It helps you keep your utilization down: When you close a card, you immediately lose the benefit of its credit limit. Credit utilization (the amount you owe compared to your overall credit limit) factors into your FICO score, and the lower that ratio, the better. Even if you pay your credit card balance in full each month, your utilization may be higher than you think because it’s difficult to know when exactly your issuer reports your balance to the credit bureaus.

    “I have 13 cards, and I use them as utilization insurance,” says Ulzheimer, whose “sock drawer” is actually an old wallet he keeps well hidden. “I can go out and spend five or 10 grand and not have to think twice about utilization.”

  • It holds your credit score steady: This is important if you’re planning on getting a major loan soon. Closing a card can make your score fluctuate unpredictably, landing you a higher interest rate.

    “If you’re in the market for a new car, or you’re going to go out and refinance your mortgage, I would never in a million years close a credit card,” Ulzheimer says.

  • You never know when the card will be useful: Shredding a card while keeping the account open is an alternative to physically sock-drawering it. But having a physical card somewhere safe can come in handy. For example, an airline card gathering dust might suddenly be useful if you unexpectedly have to fly into that airline’s hub, says Jason Steele, a credit card expert and contributor at Comparecards.com. Priority boarding can make the experience more pleasant, and free checked bags will save you money.

    Plus, you might get a targeted promotion in the mail that offers you extra points on a hibernating rewards card if you spend a certain amount.

    “It’s almost as if the card issuers know that people are sock-drawering,” Steele says. “And they send you these little promotions to give you a reason to dig the card out.”

Another oft-cited defense of the sock-drawer method is keeping your average age of accounts high, but that’s a misunderstanding, Ulzheimer says. The three major credit bureaus have a policy of keeping accounts closed in good standing on your credit reports for 10 years, where they’ll continue to factor into your FICO score.

True, the account will eventually fall off, but by then “who knows how many other things have happened to your credit?” Ulzheimer says. “All your other accounts will be 10 years older by then, so it’s probably going to be a meaningless issue.”

When it makes more sense to close a card

If a card is costing you money to keep it open, don’t sock-drawer it; close it.

“The big thing for me is when there’s an annual fee due,” Steele says. “Then I’m going to strongly consider closing the account.”

But before you do, call your issuer and request that it waive the fee. Steele’s requests have often been successful, he says.

Out of sight, but not completely out of mind

Don’t simply forget about your sock-drawered cards. You’ll have to do a little regular maintenance for the following reasons:

Fraud: Although it’s highly unlikely, someone (family member, for example) may find your card and use it. Or your card information could get lifted in a data breach. If you’re not logging in to your account (and you’ve opted out of mailed statements), you might not notice the fraudulent charges.

The good news is that the Fair Credit Billing Act and the card networks’ own zero-liability policies ensure consumers aren’t held responsible for fraudulent charges on their credit cards.

“At the end of the day, if it’s a credit card, it’s not your money, it’s the bank’s money. The sense of urgency is not on your shoulders,” Ulzheimer says.

Still, charges you don’t know about can lead to late payments, so catching fraud right away is ideal. Ulzheimer suggests setting up balance alerts (which the bank will send to your phone or email). Steele, meanwhile, likes paper statements.

“I don’t have to remember to log in or worry about emails going into my spam folder,” Steele says. “I get a piece of paper in the mail that says, ‘Hey, there’s a bill that’s due’ or ‘Here’s some charges.'”

Closure for inactivity: There’s no universal policy governing if and when a bank will close your card for inactivity, Steele says. None of his sock-drawered cards have been closed.

“I have cards I haven’t touched in years, and [the issuers] continue to keep the account open,” he says.

Yet, closure is still a possibility for long-dormant accounts, Ulzheimer says. Banks are no longer allowed to charge inactivity fees, thanks the CARD Act of 2009. Furthermore, open, unused cards net issuers nothing in swipe fees and leave them open to risk, so they may prefer to shutter unused accounts. So, if you plan on keeping a card in your sock drawer for years on end, consider taking it out for a night on the town once in a while.

“Fill up your car, buy dinner with it, pick up groceries, get your dry cleaning — anything at all to knock the dust off it,” Ulzheimer says. “… Then pay it off as quickly as possible so you’re not incurring any interest.”

The bottom line: Sock-drawered cards offer tangible credit score benefits with very little maintenance required.

“I don’t overthink it,” Steele says. “I have some cards in my wallet, and I keep some in my safe. I have an above average number of credit cards, but it’s not so many that it’s overwhelming.”

Which cards are in your sock drawer? Find out how our forum members handle their sock-drawered cards here.

 
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How does it affect your credit score if the bank closes the card vs. you closing the card?

Your credit report will still show your past history and report if a company or bank closes your account due to inactivity. You are penalized if it’s one of your longest creditors because your length of credit history will be reduced.