Credit cards have become ubiquitous as a method of payment.
Indeed, it’s much more common to see a customer pull out a credit card than pull out cash. According to the Federal Reserve, in 2008 the average cardholder had 3.5 credit cards. However, I have to admit that I have had many credit cards over my life.
One of the reasons that many of us seem to accumulate credit cards, though, has more to do with trying to keep the credit score intact than anything else.
Collecting Cards for Credit History and Limit
One of the reasons I haven’t canceled some of my older cards — including some that don’t have rewards programs — is that I don’t want to reduce my available credit.
Your available credit is important, since it indicates how much of your credit you are using. While my credit utilization isn’t high, it would be lower if I canceled some of my older cards.
This is because part of your credit utilization is figured on how high your balance is.
Even if you pay off your balance each month, there is a chance that, at some point, what is on your card will be reported to the credit bureaus. If your balance of $1,000 is reported to the credit bureaus the day before you pay it off, your credit utilization is going to reflect that.
In order to maintain a favorable credit utilization, I like to keep my older cards, many of which have higher limits as they’ve been gradually raised through the years.
Another reason has to do with the length of credit history.
The longer you have had credit, the better your credit score. Canceling an old credit card account can result in a shorter average credit history. While that’s not a huge impact on your credit score, it’s still not something that I am particularly comfortable with.
Is It Dangerous to Have So Many Credit Cards?
In a way, it could be dangerous to have so many credit cards. The biggest temptation is spending a great deal of money, and running up debt.
Right now, I pay off what I charge on my cards each month. However, it is easy to view the available balance as “my” money — even though it really isn’t. With this mindset, overspending because a real risk.
Far too many people get caught signing up for credits cards without thinking of how they will use them. They enter a store and see a quick discount and sign up for another card. When you have credit at a particular store you may be tempted to spend more there. You need to watch out for this as well as the fact that retail cards tend to carry higher interest rates as well.
When you have a lot of credit cards, it is important to make sure you keep an eye out for identity theft.
After all, the more credit card accounts you have, the greater the chance of having one of them stolen. Make sure that you reconcile your account statements regularly, and stay on top of the situation as much as possible.
It is also a good idea not to carry all of your credit cards at once.
Don’t keep them all in your wallet. I only have the main credit card I use for most purchases in my wallet. That way, if my wallet is stolen, only one of my accounts is compromised, rather than having a thief ransack all of them. The rest of my cards are locked up in a safe place.
Take a look at how many credit cards you have. You may need to check a credit report to actually see all of them. Make sure you have these accounts for the right reasons.