How many is too many credit cards?
By Erica Sandberg
Dear Opening Credits,
I have two credit cards at the moment, both paid off but still open. I do not use these now due to the high interest rates once the 0-percent promo was finished. In the future, would it affect my credit score if I got another credit card to get 0 percent again to book a holiday? I always pay them off, but don't know if having too many paid off credit cards is a problem? -- Emma
An overabundance of satisfied accounts? That's like wondering if you have too many wonderful friendships. No such thing!
At this moment, you have a couple of open credit cards that you were using -- presumably for at least a year -- to buy some things that you wanted. You obviously were disciplined enough to pay off your balances during the card's 0-percent promotional period before the regular APR set in, for which you should be proud. Many people overestimate their ability to pay off a large balance during a card's promotional period and end up paying interest on any remaining balance or new purchases on the card. It heartens me to hear that once the promotional period expired and the regular APR rate set in, you stopped using the cards altogether.
The history and payment activity on those two cards will remain on your credit report for up to 10 years. You can choose to just keep them in a drawer or bring them out once in a while to charge something small to keep the cards active.
Before you apply for a new card, I would suggest you check your FICO scores to see where they are (you can purchase them at myFICO.com for about $20 each). If they're in the 750 and above range (and you have a decent and steady income), you should be eligible for a new account with an excellent rate.
Applying for a new credit card will temporarily ding your credit score by a few points due to the issuing bank checking your credit (known as a "hard pull") before approving you for a new card. But no worries, your credit score should rebound relatively quickly.
As for your question of having too many paid-off accounts hurting your credit, the answer is twofold. First, it is a myth that carrying a balance improves your credit score. Lenders want to see that you paid on time and as agreed. And carrying too high a balance (more than 30 percent of your credit limit) can hurt your credit score. So, paying off your balances every month is a good thing.
The second half of the answer is the part that may inspire more caution. Sometimes having too many credit lines open can scare off a new lender, especially if you've only been handling credit for a short while. The longer you've been managing credit responsibility, the less that becomes a concern. Plus, having too many open accounts can make it hard to keep track of them all. I would suggest having no more than two or three open credit card accounts at a time.
Once your new card has served its purpose and the balance is paid off (before the 0-percent promotional period expires!), I would consider canceling one of your cards before you attempt to apply for another just to keep the number of cards in your wallet down.
On a final note, charging the costs of a vacation rather than saving up for it beforehand can lead to trouble. As we all know, even the best-laid plans of mice and men oft go astray. While your intentions to pay off the debt during the promotional period may be set in stone in your mind, an illness, accident, natural disaster or other unplanned event can throw your repayment plans off course. So charge wisely, preferably when you have money in the bank to cover your debts.
Erica Sandberg is a nationally renowned personal finance authority. She’s host of several financial web shows, and a frequent guest for media outlets such as Fox, Forbes, Nightly Business Report and NPR. Erica previously was affiliated with Consumer Credit Counseling Service and was KRON-TV’s on-air credit expert. Her book, "Expecting Money: The Essential Financial Plan for New and Growing Families," was published in 2008 by Kaplan Press.