Originally created 02/11/02

How many credit cards are too many?

Q. My wallet is overflowing with credit cards, including several from major banks that have balances on them and several store cards that I rarely use. How many cards should I have, and how do I go about paring down?

A. Many consumers have far more credit cards than they need, which can tempt them to spend excessively and forgo budgeting, said Diane Maloney, a financial planner in Plainfield, Ill., in suburban Chicago.

"I have seen some of my clients unfold their credit cards and they have 15 or 20 of them. They carry them in a special pack," Maloney said.

Most financial experts say consumers don't need more than three major credit cards.

Here's how to go about picking those three cards, said Steve Rhode, president and co-founder of myvesta.org, formerly Debt Counselors of America:

1. First, select a card to use for most of your monthly purchases and that you will pay off at the end of the month. Because you will be paying the balance in full, Rhode said, you don't need to worry about finding the best interest rate; instead, choose a card that will offer you a perk you'd use, such as frequent flyer miles or free shipping from a catalog merchant.

2. In picking the second credit card, look for the lowest interest rate. Perhaps get a fixed-rate card with a lower-than-normal rate - the average rate being about 18 percent. "This is the card in which you will need to pay over several months. This is the card for vacations and major purchases," Rhode said.

3. "The third card is a backup card" for emergencies, Rhode said. "It's not a backup card to load up, though." The main reason to have a card in reserve is in case you exceed the credit limit on your primary card, he said.

Consumers should be concerned about having too many cards, Maloney and Rhode said. The more cards you have, the more debt you theoretically can accumulate, and that can be a problem when if you want to buy a house or a car. Even if you're not carrying balances, lenders look at those credit lines as potential debt and might come to the conclusion that you wouldn't be able to pay off another loan.

"If you have a card with a $1,000 line of credit, and several with $5,000 lines, there is the possibility you could run up all those cards. I have had clients who have had credit denied until they have closed down some cards," Maloney said.

It's important to remember to cancel your extra cards once you have selected the three you'll keep, Rhode said.

To cancel credit card accounts, send a letter to the issuer, and also request a letter be sent to you to confirm that the account has been closed.

Finally, check your credit report - the pros recommend doing this annually - to make sure it reflects which accounts you have closed and which are open. For details on ordering your credit report, go to www.myvesta.org. Or, you can go to the Web sites operated by the three credit reporting bureaus - Trans Union at www.transunion.com, Equifax at www.equifax.com and www.experian.com.


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