The hidden hazards of having too much available credit.
A wallet full of credit cards may seem like a convenienceand a sign of statusbut it could hurt your ability to get a mortgage or other loan. Lenders consider the credit available to you on credit cards as outstanding debt, even if you've neither used it nor plan to use it. So, if you have four cards, with a total credit limit of $100,000, a bank may turn you down if you don't have the resources to repay that amount, even if you have the ability to repay the loan for which you're applying.
Carrying many cards may also encourage you to spread your purchases among them, several small monthly payments being less painful for some people than having to pay off one or two larger bills. But tracking what you owe becomes complicated when each card has its own rates and conditions. And if you juggle several credit cards, and receive monthly bills for each, you may inadvertently miss a paymentor be forced to miss a payment when cash is tight.
Card issuers today don't give much leeway for people who make mistakes or miss payments. If you miss your scheduled due date, pay less than a card's required monthly minimum, or exceed your credit limit, you can get socked with a punitive interest rate, and a penalty ranging up to $30. Your negligence will also jeopardize your creditworthiness.
Another hassle: The majority of card issuers consider their customers fair game for all sorts of marketing offers. The more cards you collect, the more calls you'll get from telephone solicitors and the more card offers you'll find in your mail box. Steven H. Austin, executive vice president of Bank South in Tulsa, OK, notes that "federal privacy rules allow you to opt out of such marketing, but doing so usually isn't a simple process."
"The biggest pitfall with credit cards, though," says Austin, "is using a higher rate card and not paying if off in full before the due date." Overcharging can put a serious crimp in your ability to build wealth. Merrill Lynch offers an example: Charge a $5,000 item and pay it off at $500 a month at 18 percent interest, and it would take you 11 months to clear the debt, during which time you'd have paid $457.83 in interest.
Look for more tips on using credit cards in our August 8 issue.
Vicki Brentnall. Keep credit cards to a minimum. Medical Economics Jul. 25, 2003;80:32.