Erica Sandberg is a prominent personal finance authority and author of "Expecting Money: The Essential Financial Plan for New and Growing Families." She writes "Opening Credits," a weekly reader Q&A column about issues for people who are new to credit, for CreditCards.com.
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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
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
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.
See related: Keeping a card balance to boost credit score is dumb advice
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