It’s usually pretty easy to open a credit card nowadays — all the rewards and perks modern cards offer make it pretty tempting too. However, it is absolutely possible to experience “too much of a good thing” in terms of credit. Sometimes trying to juggle too many active credit card accounts can hurt your financial health, as well as make paying bills each month more complicated.
Here are five signs you may be dealing with too many credit cards right now.
#1: You’ve Missed Payments
Forgetting a single payment isn’t the end of the world, as long as you rectify it as soon as you notice it — ideally before the 30-day mark, so your creditors don’t report it to credit bureaus. If it’s your first late fee, you may be able to get your creditors to waive the late fee for this one-time mistake.
On the other hand, if you’re habitually falling behind on payments or missing them altogether, you should take it as a sign you have too much on your plate right now. You may find it easier to use fewer cards so you have fewer individual statements coming in each month. There are also a few different methods of credit card consolidation to consider, such as balance transfers onto a new low-interest card, or taking out a personal loan to pay off all your credit accounts at once.
#2: You Pay Only the Minimum Due
Paying the minimum amount due — whether it’s a small percentage of the balance or a low flat fee — will help you avoid late fees and will technically keep your account current. But experts advise it’s generally not a sustainable, long-term strategy because it still allows interest to accrue in the background.
Paying more than the minimum helps keep your credit utilization rate — the amount of available credit you have in play — low, which we’ll discuss further in our next section.
#3: Your Credit Utilization Rate Is High
Utilizing more than 30 percent of your available credit or so — on each card or cumulatively across all your cards — can bring down your credit score. Why? Because it signifies to creditors that you need to be making purchases on credit, and therefore may be a riskier borrower.
A good rule of thumb is to keep credit utilization — which you can calculate by dividing a balance by its limit or all your balances by their cumulative limit — below 30 percent. If you find yourself naturally creeping over this threshold, consider whether having multiple cards going at once is a factor in your spending patterns.
#4: Your Debt-to-Income Ratio Is High
Another way to measure financial health is comparing your total monthly debts to your gross monthly income. When this debt-to-income ratio (DTI) gets too high, your credit score can dip because lenders tend to look upon you as a risk. A high debt-to-income ratio can also affect your ability to qualify for certain loans at certain interest rates — for instance, 43 percent is usually the cap for getting a Qualified Richmond Hill mortgage broker, which offers the most protections for borrowers.
Excessive credit card use may be a contributing factor to high DTI, which is why it’s worthwhile to monitor how you’re doing and make adjustments as needed.
#5: You’re More Tempted to Spend
Do you ever feel yourself tempted to pay a higher price on credit simply because you can? If so, you’re not imagining this phenomenon. Studies have shown consumers are willing to spend more on a card than they would in cash — up to 83 percent more in fact. More cards may, unfortunately, equate to more temptation in this department.
While you don’t necessarily have to close accounts — and, in some cases, should avoid doing so for the sake of your credit score — you may want to “retire” some of your credit cards if you find yourself experiencing any of these pitfalls.
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