As mentioned above, there’s nothing wrong with credit. And there’s nothing wrong with having more than one credit card. But how many is too many?
It depends on the reasons why you have the cards, and how well you are managing them.
Some people like to have different cards for different purposes – for example, they might have one card for general spending and keep another card in reserve, to be used for emergencies.
Some people apply for an additional card when they find a better rate than they’re currently on, or when they want to make a balance transfer onto an interest-free card. Others apply for new cards that provide them with vouchers, points or rewards.
In these cases, having a couple of different cards is probably not going to be an issue as long as you are making your payments on time, and getting the most out of the benefits offered by the cards – for example, by paying off the balance of a 0% card within the interest-free period.
But, if you’re so reliant on credit that you’re looking for a new card every time you reach the limit of the previous one, or if you’re applying for one loan after another, then this is a big warning sign telling you that there’s a deeper problem with your finances.
2. It can affect your credit score.
Exactly how the main UK credit reference agencies (Experian, Equifax, TransUnion and Crediva) calculate your credit score is a closely-guarded secret, and each one does it differently. However, one thing that they do take into account is something known as your credit utilisation – how much you’re using of your available credit.
For example, if you have a credit card with a limit of £2000 and have used £1800, then your utilisation is 90%. This is very likely to knock points off your credit score. In general, you should aim to keep your credit utilisation under 50% – so keep your spending at roughly half of your available limit to preserve your score. Keeping it down to under 30% could even improve your score. Paying off the balance in full each month will improve your credit score – it also means that you don’t pay any interest on your borrowing.
Utilisation is calculated on the individual cards and the total number of cards you have. So, even if you have a very small balance on one card, it won’t help your score if your other four cards are maxed out.
3. It can prevent you from getting credit when you need it most.
When you apply for a loan or credit card, the lender will check your credit file before approving your application. If your file shows that you already have several loans with large remaining balances or multiple credit cards at their limit then the lender might decide that you’re over-indebted. They might then decline your application (which in itself can also affect your credit score.)
The lender could still approve your application – but for a lower credit limit or lesser loan amount. That might not be enough for your needs, especially if you are already reliant on credit.
Alternatively, you might get the loan amount or credit limit you want, but find that it’s on a higher rate of interest, which makes the borrowing more expensive overall. This is because the interest rates offered to customers are based on a variety of factors, including what the lender perceives as risk. Someone with multiple credit cards, large loans, and several store cards is likely to be seen as a higher risk than someone with only one card and a couple of small loans.
4. It can be difficult to manage.
Trying to manage multiple credit cards and loans can seem like a juggling act. With the different balances, different payment amounts, and different payment dates, it can be too easy to lose track of what needs to be paid and when, especially if you are making manual payments.
There are a couple of things you can do:
- First, set up direct debits for all of your monthly payments. For credit cards, make sure that this is for the minimum payment each month. You’ll still have the freedom to make additional payments or pay the balance off in full, whenever you want. But by setting up a direct debit, you are guaranteed to make your payments on time, and for the correct amount. You won’t inadvertently miss a payment and impact your credit score.
- Set up the payment dates for the same time each month if possible. This will help you keep track of what is due to come out, and help you with your overall budgeting. Ideally, this should be shortly after your wages are paid into your account. Your payments will go out alongside your priority bills and before any discretionary spending, giving you some peace of mind for the rest of the month, knowing that your debts have been paid.
Managing multiple credit cards can be particularly difficult, especially if you’re still using the cards. Unlike personal loans – where you borrow a fixed amount, and pay it off over a set term, with clear end date – credit cards are a form of “revolving credit.” They are open-ended accounts that can be used and paid off over and over again, as long as the account remains open. The balance can go up and down, and the minimum payments can change accordingly. This can make keeping on top of several cards even more of a challenge.
5. It can be a weight on your mind.
Let’s face it – having a too much credit isn’t a situation anyone wants to be in. It’s something that can keep you up at night, especially if you’re struggling with debt. Missed payments can lead to defaults, which can lead to more serious consequences, such as County Court Judgements (CCJs).
Once you’re in difficulty and struggling with money, it can be hard to get back on an even keel. You can find yourself trapped in a vicious cycle of problem debt.
6. What can you do about it?
If you find yourself in this situation, then what options do you have?
If you’re a homeowner, then the answer might be a secured loan for debt consolidation.
With a secured loan, you can get rid of credit card debt, pay off loans and store cards and simplify your finances. Rather than having multiple lines of credit, with different payment amounts coming out at different times, with a secured loan you will have one affordable monthly payment. You’ll know exactly what is coming out of your bank account and when, making it much easier to budget.
Rates for secured loans start at just 2.9%, much better than the average credit card rate of around 20%. Because the rates are lower, and because you can take out a secured loan for a longer term, the monthly payments can be much cheaper than the payments to your existing credit. This in turn can reduce your outgoings – meaning that you have more disposable income at the end of each month, and no further need to rely on credit.
Secured loans have definite end dates, and the interest rates can be fixed, just like mortgages. With a fixed rate, your monthly payment won’t increase over the term, which can also help with budgeting and give you some reassurance, especially with prices rising everywhere else.
A secured loan can pay off your existing debt in full, meaning that any accounts that are causing you problems can be dealt with for good, and any further impact to your credit profile can be minimised. Even if your credit file has been affected, you can still get a secured loan with bad credit.
All in all, if you’re a homeowner with equity in your property, then a secured loan offers a range of benefits and might be the right solution to your problems.
If you’re thinking about a secured loan, it’s important to get the right advice. Contact us and speak to one of our qualified mortgage advisers today. We’ll look at your situation and give you the best debt consolidation advice, helping you to get rid of debt, tidy up your finances, and take away the worry.