It seems like every day there’s another preapproved credit card waiting in my mail box. And some of those offers look pretty tempting — after all, who wouldn’t want a 0 percent interest rate if only for a few months. It doesn’t stop at the mail box, either — every store at the mall has it’s own credit card, offering a few extra coupons and special sales. It’s easy to pick up enough credit cards to play poker with.
Having so many cards can be a very bad thing, though. Even if you aren’t tempted to use them, there are reasons you need to cut that deck. Personally, I’m down to two cards and I plan to keep it that way. One is my great deal, cash back card that I rely on for most purchases and the other is my emergency card. A few more cards probably wouldn’t hurt me, but there are plenty of reasons to keep my wallet thin.
Most importantly, having a lot of available credit can actually be detrimental if you’re applying for a mortgage or other loan. Think of it this way: between 15 credit cards, you might have $15,000 worth of credit available beyond your current balances. If you apply for a mortgage the lender will want to know if you can pay off the mortgage even if you were to make $15,000 worth of purchases on those cards. The lender will assume that you have 15 cards because you’re planning to make purchases on all 15 of them. It’s a reasonable assumption, too — why bother to have so many different cards, otherwise?
Numerous credit cards can also open you up to a greater risk of identity theft. It’s simple math: the more places your personal information is floating around, the higher the odds that someone is going to take a look at it that shouldn’t. And if you have a record of taking out new credit cards, you may miss someone using your identity to do the same.
It’s easy to trip up with extra credit cards, too. The more cards you have, the more likely you are to miss a payment, even through plain old forgetfulness. It’s also easier to rack up debt, even if you’re trying to be responsible. If you don’t look at every statement every day — and honestly, who does? — it’s easy to forget that you charged a certain amount on a card and need to pay it off.
If your wallet needs to lose some of its credit card weight, get a copy of your credit report to help you decide which cards to cancel. You always want to keep your oldest account open — otherwise, your credit history can look shorter than it really is. Besides that oldest card, if there are any cards that you simply don’t use, I’d recommend canceling those first. From there, it’s simply a matter of checking which of your cards has the best interest rates combined with the best perks (cash back, for instance).
June 6th, 2008 at 1:26 pm
Hi Thursday,
I agree with you completely. I think we are all bombarded so much with credit card offers by mail, and telemarketers, that being aware of the different promotional tactics is prudent. One of the one’s we see most are the zero percent rate, but you really need to look at the small print. Check the small print on the back of the mail offer and you will usually see that that rate is only good for a limited time. Also, if you make a payment and it is even one day late the rate will usually jump very high, and you might not realize what happened until you have been paying the payment for a few months and it may be over 20%. So the moral to the story is to be sure you know what you are getting into.
June 6th, 2008 at 8:36 pm
I’m going to disagree with one main point: having a lot of credit available is probably not going to be detrimental if you’re applying for a mortgage. You need a good credit history when you’re applying for a mortgage. Good credit history is built by using and paying off credit in a timely manner. If, after you’ve paid off all of your debt, you go out and start closing accounts, you will lower your credit score. This is what will harm you when applying for a mortgage, not excess available credit.
June 6th, 2008 at 10:46 pm
Great post! I was wondering about this just the other day.
I’m a new college grad with perfect credit, so I’ve been marketed at a lot. I have two credit cards: a Discover cash back card and a Fidelity Visa cash back card. I really want to open one more but I’m afraid my credit score will get dinged, so I’ve been holding off.
However, I’m a co-holder of two of my parents’ credit cards. These are credit cards they got with their credit score so they have massive credit limits. Is this going to hurt my chances of getting a mortgage since I technically have more available credit? Neither of them are my oldest accounts… Should I consider telling my parents to take me off their cards so I can get a better mortgage rate? I’m planning on purchasing a home very soon.
June 7th, 2008 at 4:09 pm
@Scott, Having plenty of credit isn’t bad — but having small bits of available credit spread across a number of cards is. Mortgage lenders assume that at some point, you will charge something on every card you have — even if they assume only a small amount charged on each card, it adds up quickly.
@Zellius, Congrats on graduating with perfect credit! I’d recommend, for the time being, to hold off on getting any new cards. But I wouldn’t be too worried about leaving your name on your parents’ cards, though. For mortgage lenders, it’s pretty clear that those cards are your parents, rather than yours.