Have you Ever Thought You May Have Too Many Credit Cards

Monday, August 20th, 2012
Updated: August 20th, 2012
The content is accurate at the time of publication and is subject to change.

Are you having too many plastics for your financial piece? Although there is no golden mean for the number of credit cards that should be in your wallet, some key points can help you determine whether you’re charging around with more cards than you need.

The recent data from Experian shows that the average U.S. consumer has about three open and active credit cards. Whether three cards are too few, too many or just enough is really a question of how one manages the accounts.

If you have the propensity to spend more than you have, you might need fewer than three credit cards or none at all. On the other side, if you spend well within your means, more credit cards won’t be a problem and even could be good for you.

If you are unsure, don’t pay proper attention or even deny your spending habits and general attitude toward credit, here are some warning signs you have more credit cards than you can handle:

1. Reading your annual credit report you find open credit cards you had forgotten having. Do you open a credit card every time you see today’s “the most advantageous offer”?

The more you have open accounts that you have forgotten the higher the risk of your identity theft. If you are not careful enough, cards lying around may be stolen and used to make charges. If you have unused credit cards that you do not want to close it would be better to lock them away or keep in a safe place.

2. Always fail to pay your credit card bills on time. Having too many credit cards can lead to the lack of time and focus to ensure proper credit card management. Every credit card requires a payment date and each one could be different. This payment juggling may lead to missed payments or late payments which could lead to a decrease in your credit score.

Even just one credit card might be too many for your own good. There is such thing as the utilization ratio: the total balance on all cards compared to the total credit limit on those cards. A high utilization ratio, regardless how many cards you have, is a strong indicator of credit risk and may significantly impact your credit score.

3. Steadily dropping credit score. The factors that influence your credit score are the length of time the credit has been open, previous payment performance and outstanding debt.

Inquiries also affect your credit score. Frequent inquiries are viewed unfavorably because it means you are shopping for a credit and every time you apply for a credit card an inquiry is added to your report and your credit score goes down a little.

To find out if the number of credit cards you own is a reason for your low credit score, check your credit report for risk factors. If “too many revolving accounts” is listed as a risk factor, it might be a good idea to ignore future card offers and think about closing some open accounts.

4. Can’t get a loan. Too many credit cards also could be one of several reasons you are being denied a home or car loan.

Even if you maintain zero balances on several open credit cards, you can be considered a risk. The loan lender realizes that you could use all of your credit cards after the loan is approved, and that will affect your ability to repay the loan.

Although a high credit score will help prove you are worthy of loan approval it is not always the case. Loan lenders are very careful and favoring mostly those with a limited number of credit cards in addition to having a high credit score.

5. You can’t put by for a rainy day. If you look at your savings and you’d prefer not to see it at all, it may appear that you are spending (and charging) more than you can afford. Ideally, you should be saving 10% or more of your gross income. If that goal is hard for you to achieve, fewer credit cards or none at all might be the way out.

Now if after reading this, you are convinced you have too many credit cards, what should you do then? Should you start closing accounts? How do you know which cards to keep and which to close?

If you are going to cut the number of credit cards you own, the first ones to go should be store credit cards, specifically those without logos of  MasterCard, Visa and American Express.

Closing credit cards, however, should not be done all at the same time. Note that each time you close a card, you will take a small hit on your credit score. Allow a six-month interval so your credit score could recover before the next card is closed.

Also, do not close your old cards, if you do, you will reduce your credit history and as a result affect your credit score and your creditworthiness. And keep credit cards that have no annual fees, no overseas transaction fees and offer rebates or cash back.

If you find that the number of credit cards you have is not a problem, you should be focusing on other financial issues that could be having a greater effect on your creditworthiness.

All rates and fees, and other terms and conditions of the products mentioned in this article/post are actual as of the last update date but are subject to change. See the current products' Terms & Conditions on the issuing banks' websites.

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