Risks of having more cards than you need

By Marianne Curphey

These days, credit cards come with many perks and features, so it is not unusual to have a wallet full of cards that offer various benefits. For example, you may have one card for travelling abroad, one for cash back and another for everyday purchases. Although this can be a useful tactic, it can count against you if you overdo it.

You look like a bigger risk to lenders
When you apply for any form of credit, potential lenders will consult your credit score to see if you are a suitable customer. One factor of your score is the amount of credit you have available. A large capacity to borrow can count against you, even if you have a zero balance on most of your cards.

Of course, in some instances, keeping all of your existing cards open may be worth it, says Jasmine Birtles, founder of Money Magpie, a website that gives tips on saving and making money. For instance, if you plan to make a major purchase and want to use credit, it'll be wise to have a higher overall credit limit so your big charge doesn't drive up your credit utilisation ratio -- the amount you owe compared to how much credit you have available.several-cards

"However ... if you wanted to borrow more elsewhere, lenders might look at you and be reluctant to lend you any more money, as you have access to so much other potential credit," Birtles says.

"This is especially [true] if you have a high credit limit that you don't use," says Sarah Pennells, a money expert who runs Savvy Woman, a financial website aimed at women.

Generally speaking, it counts in your favour to have a high limit, use a
small portion of it, and pay it off each month. This gives you a low credit utilisation ratio. However, asking for more credit when you already have a high, relatively-unused limit is still going to make a new  lender concerned about the capacity for you to borrow the entire sum all at once and then struggle to pay it all back.

"Lenders look at not just what you owe ... but also how much you could borrow immediately," Pennells says. "There would be nothing to stop you going out and spending up to the maximum on those cards if you wished."

Pennells suggests checking your limits on your existing cards before applying for more credit, as you may have had a limit increase without realizing it.

"If you have been a good and long-standing customer, then you might automatically get given a credit increase, especially if you have been with the same provider for years and not switched," Pennells says. Your issuer should tell you about any increases (or decreases), but if you have a tendency to toss out your mail without paying close attention, it's possible you missed it.

You're at higher risk for fraud
Having several cards also makes it more difficult to keep track of all your statements, and fraudsters could find you an easier target.

Generally speaking, it is a good idea to keep just two or three cards, says Birtles. "Having many more than this opens you up to potential fraud. For example, you might get sent a replacement card and not know you have been sent it. This happened to me and my card was intercepted and stolen, so I never knew it had gone missing."

Furthermore, you should carefully comb through all your statements each month to check for suspicious charges. If you have five or more statements coming through each month, the odds of you going through each one get slimmer, or you may not spend as much time as you should.

With a bunch of cards you don't use regularly it could take you a while to realize if one goes missing. By then, a fraudster could have racked up charges. While you aren't liable for fraudulent charges, it is a headache to call your issuer and credit bureaus to get it fixed, and if you don't know it's happening, your credit score could temporarily suffer.

You may be paying for them -- literally
Finally, if you're holding a lot of credit cards you don't use, you may be paying needless annual fees or dormancy fees. "When you have lots of cards, it can be hard to keep track of them all and some like Santander and American Express have a monthly fee," Pennells says. Before you know it, you're paying quite a bit on monthly or annual fees on cards you don't even use.

Additionally, you could have rewards going to waste if you collected points on a rarely-used card, or simply forgot about rewards because you're trying to juggle too many programmes. While you don't actually have to pay for lost points, it's still akin to money down the drain.

See related: Need a balance transfer? Check your wallet first, Does applying for credit hurt my credit?, Searching for the 'ideal' number of credit cards

Published: 10 December 2015