Is it good to have lots of credit cards you don t use?

The Credit Card Conundrum: Is More Always Merrier?

The allure of a wallet overflowing with credit cards can be tempting. Loyalty points! Travel miles! Exclusive discounts! But is hoarding a collection of unused credit cards a financially savvy move, or a hidden hazard waiting to impact your credit score? The answer, as with many things financial, isn’t a simple yes or no.

While the presence of multiple, unused credit cards doesn’t automatically torpedo your credit score, the reality is more nuanced. Think of it like owning a gym membership you never use. You’re not actively hurting yourself, but you’re certainly not reaping any benefits and might even be paying for the privilege of inaction.

The Unexpected Upside of Open Credit Lines:

The surprising truth is that having a larger overall available credit limit, even across multiple cards, can actually improve your credit utilization ratio. Credit utilization, which represents the percentage of your available credit you’re actually using, is a major factor in your credit score. Ideally, you want to keep this below 30%, and even lower is better.

Imagine you have one credit card with a $1,000 limit and consistently carry a $500 balance. Your utilization is a high 50%. Now, imagine you have that same card, plus three unused cards with a $1,000 limit each. Your total available credit is now $4,000, and that $500 balance represents a much healthier 12.5% utilization.

In this scenario, the unused cards have indirectly boosted your credit score by improving your utilization ratio.

The Pitfalls of Potential Problems:

However, before you rush out to apply for every credit card under the sun, consider the potential downsides:

• The Temptation of Overspending: Having a high total credit limit can be a double-edged sword. It might lull you into a false sense of financial security, leading to increased spending and potentially spiraling debt.
• The Risk of Forgotten Fees: Many cards come with inactivity fees that kick in if you don’t use them for a certain period. Neglecting your unused cards could result in unexpected charges and a gradual erosion of your available credit.
• The Threat of Fraud: Unused cards are vulnerable to fraudulent activity. You might not notice unauthorized charges on a card you rarely check, leaving you responsible for covering the damages.
• The Complication of Management: Tracking multiple credit cards, each with its own due date, rewards program, and terms and conditions, can become a logistical nightmare. Missed payments, even on a small balance, can negatively impact your credit.

The Smart Approach: Strategic Usage and Responsible Management

The optimal strategy isn’t to accumulate a mountain of unused cards, but rather to strategically utilize a few cards that align with your spending habits and reward preferences. Here’s how to navigate the credit card landscape effectively:

• Choose Wisely: Opt for cards with no annual fee and rewards that match your spending habits.
• Keep it Active: Use each card at least once every few months to avoid inactivity fees and demonstrate responsible credit management. Even a small purchase, like a cup of coffee, will suffice.
• Pay on Time: Set up automatic payments to ensure you never miss a due date.
• Monitor Regularly: Check your credit card statements regularly for unauthorized charges and unusual activity.
• Prioritize Utilization: Aim to keep your credit utilization below 30% across all your cards.

The Verdict:

Ultimately, the decision of whether or not to have multiple credit cards hinges on your ability to manage them responsibly. While unused cards can indirectly benefit your credit score by boosting your available credit, the potential pitfalls of overspending, forgotten fees, and fraud make it a strategy best suited for disciplined individuals.

A few strategically chosen and actively managed credit cards, used responsibly, are far more beneficial than a wallet full of forgotten plastic. By prioritizing responsible credit management, you can build a strong credit history and unlock a world of financial opportunities.