Is Having Too Many Credit Cards Hurting Your Finances
Something that a lot of people may ask is “Is it bad to have too many credit cards?” or “can you have too many credit cards?” The answer is difficult as it will depend on a few variables.
Having no credit cards could count negatively towards you. You potentially miss out on multiple rewards and vitally a way to build your credit report. On the other side, having lots of credit cards can also impact you as you might be tempted to spend unnecessarily and you may be seen as a risk to lenders due to having over exposure to additional money.
Advantages of a Credit Card
Credit Cards are great if you know how to manage your money and are able to pay off the outstanding balance each month. With each transaction you make on a credit card and each time you repay that amount you are showing lenders you are able to manage your money and make repayments on time. This will reduce risk that lenders may be looking for when deciding to lend money to you.
Credit Cards are also a great way to access money for a limited length of time. As long as you pay back before any interest is added this will allow you borrow money for free. You also get perks with credit cards for example, Tesco are offering extra Club Card points if you spend on their credit card on top of the points you earn through your Club Card. Essentially you get double points.
Having multiple credit cards can improve your credit score by keeping the amount of debt you have lower per card. For example if you have one card with a limit of £2000 and you spend £1500 your debt utilization will be 75%, something lenders may frown upon. If you spread this over 2 cards that have a limit of £2000 then your debt utilization per card drop down to 37.5%.
Negatives of having multiple Credit Cards
If you have multiple credit cards then you essentially have excess credit. For example if you have 4 credits cards with a £2000 limit on each, you could spend up to £8000 and thus be in debt for that amount. You also have to factor in potential fraud. With every credit card comes that extra risk.
Having a few credit cards would be the best ideal, limit to no more than 3 cards. If lenders see a pattern of borrowing and repaying they are more likely to accept and further applications to borrow money.
For good credit card management you should never spend more than 30% of your total available credit. If you have multiple cards that have very small balances then lenders may reject you and you wont make them money. On the flip side having high balances means you are risking lenders loosing money if you default. By keeping no more than 30% you show you can manage money and lenders are still able to make money from you borrowing
You have to ask your self why you have multiple credit cards and the reasons behind it. Having multiple cards is not a bad thing however having multiple credit cards and applying for more would give a negative impressions to potential lenders. If you have credit cards you no longer use for reasons such as your out of the interest free period then it would be wise to cancel these and only keep the cards you plan on using. One thing to note tho is you should try to cancel the cards you got first, keeping intact your longest serving cards as lenders like to see a long account history.
Having multiple cards also poses a security risk and you may be more exposed to fraud.
how many credit cards you have comes down to personal preference. Closing unused credit cards may impact your credit score but it should be minimal and recover within a 6-12 months. Your age will also play an important role in closing accounts. Someone who is young and has limited credit history will be see a great impact on their credit score, where as someone who is 50,60 and over will see less of an impact.
Aside from the issues linked to your credit file and potential borrowing you have to think about your own personal circumstances and how you manage money. If you have multiple cards would you be tempted to spend on unnecessary purchases, can you afford pay off the monthly payment across multiple cards with your current outgoings.