Keep only the cards you need

By Marianne Curphey

It's handy to have a few different credit cards for various situations -- a card for travelling, an everyday card, a card for large emergency purchases. But if you find you are turning into a card junkie with a wallet full of plastic, it might be time to think about a cull.

You may want to trim some cards for a few reasons. First, having too many cards exposes you to a risk of fraud, as you might have a harder time keeping up with all of them. "One of the main reasons people close down a credit card account is because they don't feel able to keep track of all their cards," says James Jones, head of consumer affairs at credit ratings agency Experian. "If you fail to keep a close eye on an account you may not necessarily spot suspicious activity."

There is also the temptation to max them out, with the risk of not being able to pay what you owe. Finally, lenders may look less favourably on you because your high spending potential is too risky.close-cc

You should consider closing cards with high interest rates, those carrying
a fee that negates any benefits, store cards from retailers where you no
longer shop and old balance transfer cards that you don't use any more.

Choosing which cards to keep, close
Before you go and shred all of the lesser-used cards in your wallet, make a thorough assessment of why you have the card, how often you use it and what benefits you gain from it.

For instance, think twice before closing a card that you use:

1. For international travel: It's useful to have a card that you keep for the occasional holiday abroad for a couple of reasons. Firstly, some cards don't charge you a foreign transaction fee when you spend abroad, so they are cost-effective. Additionally, using plastic while abroad can help you track your spending and protect your money in the event of theft.

2. For rewards or cashback: If the perks or rewards offered are genuinely useful to you, it's a good idea to keep the card. For instance, if you travel frequently, a card that offers airline rewards or travel insurance would be handy. Or if you get a good cashback deal on the majority of your purchases, it may make sense to keep the card.

However, make sure that a hefty annual fee doesn't outweigh the rewards you earn, and don't keep a rewards card from which you never reap the benefits. Additionally, keep in mind that changes to interchange fees, which are the fees merchants pay to process plastic transactions, are causing many rewards deals to fade away. Once they're gone, it may be time for you to reconsider whether you need those cards anymore.

3. To transfer a balance: Balance transfer cards offering a 0% interest promotional period can be useful for consolidating credit card debt -- as long as you have a repayment plan to clear the balance during the interest-free period. Once you've paid off the debt, you probably don't need this card anymore.

4. For the low APR: You may want to keep a low- or no-interest card for emergencies for large purchases. But if you have another emergency card in place, there's no need to have a second one.

5. To repair credit: if you have bad credit or no credit, a credit-building card can be useful for a while. The very high interest rates mean they are more suitable for short-term use, though, so you should consider closing them down once you are able to apply for mainstream cards.

This list is, of course, not comprehensive, and there are several other instances where keeping a card makes more sense than closing it. For instance, Jones says it can be a good idea to keep your card with the highest credit limit, even if you are not using it much. "That is because lenders look at how much ... credit you have available, and the credit you actually use. The lower [that percentage is], the better," he explains.

Likewise, a card that you have had for several years can count in your favour. "Lenders like to see that you have a mature relationship with credit," says Jones. Having a card for several years could boost your credit rating; closing your oldest card could cause your credit score to dip a bit, he says.

Finally, having more than one card that you use and pay off regularly can be good for your credit rating, because it shows you can manage credit responsibly.

In the end, it matters less how many cards you have, and more how you actually use them. If you are financially disciplined, you might have five or six cards that you use and pay off regularly, and you might not need to close any of them. On the other hand, you might have two cards that you keep nearly maxed out, which would reflect poorly on you if you need more credit or a loan. Keep your wallet only as full as you can handle it, and cut out the rest.

See related: Emergency credit card a good idea -- if used wisely, How to cancel a credit card

Updated: 24 May 2017