Why it’s a bad decision to use the same credit cards indefinitely
Although credit cards offer a high level of convenience, they are not suitable for everyone. If you have a hard time paying off your balance each month, you will end up paying high interest charges and potentially damaging your credit score. However, for those who can use credit cards responsibly, they can be a great financial tool. For starters, good use of credit cards can boost your credit score, which can potentially lower the interest rate on any future borrowing, from auto loans to mortgages. Credit cards also generally offer a wide range of benefits. Here are a few reasons why you might want to responsibly open new credit cards every now and then, rather than just using one.
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Disadvantages of using the same credit cards indefinitely
The main disadvantage of using the same credit card indefinitely is that you might be wrong about the benefits. New cards generally offer lucrative signup bonuses, and card issuers are constantly innovating when it comes to new features and benefits. Even if your card was considered state of the art or high end when you got it, it has likely been overshadowed by the value you can get from new cards.
If you are looking to keep your credit score high, it can be beneficial to have several different credit cards instead of just one. The reason for this is the use of credit, which is a big factor when it comes to your credit score. With more than one credit card, you will have a higher total line of credit. If you have a balance on your credit cards, a higher Total Line of Credit will keep your credit usage low, which will help protect your credit score.
What benefits can you expect from a new card?
Signing up for a new card can open up a world of new benefits for you. For starters, most cards today offer at least some type of signup bonus, ranging from a $ 100 credit to 100,000 points or more. After that, most cards will give you a wide range of features and benefits. Typically, the more expensive cards offer the most benefits, from free luggage on airlines to lounge access, free subscriptions to food delivery services, travel credits and more. But even cards with no annual fee can offer a number of features, ranging from bonus points on purchases like groceries, gas stations, and travel to cell phone insurance and birthday point bonuses.
Be careful not to register for too many cards
While there are many benefits to purchasing new credit cards, there are caveats as well. Every time you apply for a new credit card, your credit score will be shaken by a few points. It’s only temporary, and the drop doesn’t last that long, but too many inquiries over a short period of time can cause your score to slow down. Potential lenders may also view your multiple credit applications as a sign of financial instability, making them less likely to grant you additional credit.
Another downside of having too many credit cards is the amount you will have to pay in annual fees. While not all cards charge a fee, if you have 10 or 20, you’re probably paying a few hundred dollars a year just in annual fees, and maybe up to $ 1,000 or more. You might also be tempted to spend more if you have an ever-increasing credit limit, which could lead to significant interest charges if you fail to pay off your balances in full.
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Last updated: October 19, 2021
This article originally appeared on GOBankingRates.com: Why it’s a bad decision to use the same credit cards indefinitely