Forward Thinking

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The pitfalls of carrying unused credit cards

Friday, February 5th, 2016  |  Barry Choi  |  Spending Articles

I was recently watching reruns of Seinfeld and came across the episode featuring George Costanza's infamous exploding wallet. If you've never watched the show, I encourage you to check out the clip. You'll see that George's wallet is ridiculously large and filled with things that he really has no need for.

I decided to take a look at my own wallet to see how it stacks up. I found a gas receipt from three months ago and a loyalty card from a store I haven't visited in two years. No big deal, but I was also reminded that I carry three credit cards that I use on a regular basis.

Keeping your wallet clean

Not everyone carries as many cards as I do, but for those of you who do, I recommend keeping any unused cards out of your wallet or purse.

If thieves get a hold of your cards, they could potentially rack up charges without you noticing, since most people don't check their inactive accounts. This is obviously an extreme example, but it's important to understand the threat of credit and identity fraud.

If your credit cards are ever compromised, you'll want to call your credit card provider right away. Getting charges reversed and replacement cards mailed to you is a relatively simple process. It's also a good idea to order a credit report from Equifax and TransUnion, just to make sure there's no other suspicious activity going on.

Having too much credit available

Even if your credit history is excellent, having too many unused credit cards could end up hurting you if you plan on applying for a mortgage, loan, or some other major form of credit. Some lenders will be hesitant to lend you more money when you already have a lot of available credit.

You would think that cancelling your unused cards would remedy the situation, but it's really not that simple. Your credit history plays a big role when determining your credit worthiness, so if that unused credit card happens to be one of your oldest cards, you may not want to cancel it quite yet.

Personally I recommend keeping your two oldest cards and the ones you're currently actively using. Anything else, you can probably cancel, since it'll bring down the amount of credit available to you.

That being said it is possible to lower your credit too much. Your credit utilization ratio also plays a role in determining your credit worthiness. The utilization ratio represents how much credit you're currently using, so if you're carrying a balance of $3,000 with a $10,000 limit, you have a credit utilization ratio of 30%. Now if you lowered your limit to $5,000, you would have doubled your utilization ratio to 60%, which could be unattractive to lenders.

The final word

There's no exact science when it comes to managing your credit cards, but paying your balance in full and on time every month will only benefit you. Plus, if you get rid of those of unused cards, you won't need to worry about your wallet exploding.


About Barry Choi

Barry Choi is a personal finance and budget specialist who blogs at Moneywehave.com.  He has been quoted in Canadian and U.S. media including The Financial Post, The Toronto Star, Business Insider, and The Globe and Mail.