There’s no topic that incites as much controversy in financial circles as the thorny question of credit card usage. Credit cards provide a means to “buy now, pay later”, which can undoubtedly be convenient but which introduces the risk of running up large debts that then become difficult or impossible to service. Given the inherent risk associated with the usage of credit facilities, some financial experts counsel that we should tear up all our credit cards. However, for most people, this is probably too draconian an approach and it will suffice to reduce the number of cards held and used.
One credit card is normally sufficient:
It used to be the case that individuals justified having more than one credit card in case the particular brand name wasn’t recognized somewhere. For example, a person might have held a Visa card as a back-up if they were in a country or store that didn’t accept their main MasterCard plastic. However, all the main credit card brands are now so universally recognized that this is no longer a valid excuse and, in the vast majority of cases, having one credit card will be perfectly sufficient.
The other justification that is sometimes made for holding multiple credit cards is that it enables a larger credit balance to be available. However, all credit card applications are subject to credit scoring that takes into consideration the facilities that you have with other financial providers. Therefore, if you have a £1,000 credit card with NatWest and another £1,000 credit card with Barclays, you could probably cancel the Barclays can and get your NatWest card extended to £2,000. The other important consideration here is how big a credit balance do you actually need to have? A lot of credit card holders have ended up with obscenely large credit facilities that they either don’t need or would be well advised not to make use of!
In some cases one credit card is still too much:
Most people are capable of managing their credit card in a responsible manner but there are people who have great difficulty reigning in their spending. For these people, the fact that they can spend up to their credit limit proves too big a temptation and they often find that they are constantly maxed on their credit card and are only able to pay off the minimum required amount each month. There may come a point where such individuals need to take the decision to cut up all their credit cards and limit their purchases to cash and/or debit cards. The key here, of course, is financial discipline. Your credit card should be viewed as only being there for occasional usage and those who can’t get into this mindset would be well advised to remove themselves from temptation’s way.
Overlap between old and new credit cards:
As well as the danger of having too many credit cards, there’s also a danger of taking out one credit card and then seeing its interest rate rise dramatically over time. Prudent credit card holders should always bear in mind that it may be financially advantageous to switch to another credit card, at a lower rate, if their existing card is no longer competitive. Requesting a new card is of course subject to credit scoring and the process of going through an application and having your card and PIN posted to you can take some time. You probably won’t want to cut up your old card until you have received your new card and have confirmed that it is working. This means that you may have an overlap when you will have two operational cards and the key is to close your old card once you are happy that the new card is working.