The Lure
There are so many rewards credit cards out there with all kinds of perks. Things like 0% interest rates, travel miles, or offering a percentage off your purchase like department stores like to do often, especially around the holidays. This makes it tempting to apply for card after card. Combining credit cards like this can be a smart strategy, but it isn't something you should jump into. Here are several ways that having too many credit cards can cost you money and make your life more difficult:
You have more monthly payments. Every time you get a new credit card, your monthly bills get more complicated. You'll have another payment to make with its own due date to remember. If you don't, you could face late payment fees, and even damage your credit if you go too long without making a payment.
You could end up paying more annual fees. The top credit cards with the most perks obviously charge annual fees, and they can range from about $75 to over $500. An annual fee is worth it when you're getting more value than the card costs.
There's a greater risk of credit card debt. It's nice to have access to credit, but these benefits come at a cost. Especially if there is no spending discipline or plan to keep from keeping high balances on the cards for an extended amount of time. The interest keeps you in debt longer. As you open more credit cards, you'll have more available credit. Unfortunately, this is a responsibility that not everyone handles well.
It's harder to get approved for new credit. It starts getting harder to apply for new credit. Lenders see you as a greater risk if you have a high number of recent applications or new accounts. You could have an excellent credit score, no debt, and be a near-perfect applicant. It's still possible to get denied simply because of how many credit cards you've opened. Some credit card companies even have specific rules about this. If you ever went through a mortgage qualification, you may have been told to close out some credit cards for this reason.
It may take longer to catch credit card fraud. The more credit cards you have, the longer it takes to review the transactions for each one. If you don't check this regularly, it could take you longer to spot credit card fraud.
Hurting your credit score. Having too many cards doesn't hurt your credit score, but applying for too many in short time frames does. If you frequently get new cards, it lowers your average account age and hurts your credit. Credit applications trigger a hard credit inquiry. Each of these has a small negative impact on your credit, and multiple hard inquiries can add up to a bigger impact.
How Do I Downsize?
To downsize your credit cards you want to strategize to cause the least amount of dings to your score as possible. There are a number of factors to consider before closing out a card. Remember how a FICO SCORE is calculated.
Also, consider what your short-term and long-term goals are (if you are not going to purchase anything major short-term, the dings to your score won't matter as much since no one will be pulling your credit).
Store cards tend to have the highest interest rate for a credit card and most of the time limited to the store you got the card from. You may want to consider getting rid of those.
The largest percentage of your credit score is your payment history and how much debt you are in. You always want to keep your debt under 30% of the credit limit, and favor the card with a good payment history. The amount of time you have had your line of credit works in your favor. But be careful, sometimes people have credit cards deleted from their accounts thinking the history is too bad, but are puzzled as to why their score went down. That's because they have deleted HISTORY. They just deleted the Longegvity of having the card (15%) and the payment history (35%).
Credit Score Simulators
A good thing to use are Fico Score simulators where you plug in the score you want to achieve with your income information, and the generator will map out a plan for you to get to that score you want to target. Transunion Compass
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