Not all credit cards are created equally
Don’t be fooled by sign-up perks, applying for multiple accounts can lead to fraud, lower scores
One of the smartest things you can do is have a credit card that you pay off in full every month AND earn points or cash back.
But can too many loyalty cards be too much of a good thing? You betcha.
You arrive at the checkout with your arms full of stuff and the cashier says, “If you apply for our card today, you’ll get a 10 per cent discount.” You’ve been adding it up in your head. That’s about a $30 savings for doing nothing more than getting the card.
Hey, how can that be wrong? You’ll just cancel the card once you’ve paid it off and you’re in the clear. Here are a few things you should know: 1. Not all credit cards follow the same rules. Imagine my shock and horror when I discovered through personal experience that there are department store credit cards that do not actually cancel the account when they say they do even if you ask them to close the account or report the card lost. That leaves the account open to fraud. No discount is worth the risk! And since it’s virtually impossible to get a body on the phone to solve a problem with some card companies, you’ll be left in purgatory wondering what you can possibly do to solve the problem you created when you went for the quick discount!
2. The more cards you apply for, the worse your credit score can become.
Every time a lender requests a credit score, an “inquiry” is placed on your credit report. Too many inquiries — usually more than two in a year — is often associated with higher rates of default. Bam! Down goes your credit score and up go your interest rates. (Your own inquiries are referred to as “soft inquiries” and do not affect your credit score, so don’t stop checking your credit history.)
3. Closing credit card accounts can also negatively affect your credit report. Close a card with a positive history and the record of your good behaviour will disappear. But negative credit activity sticks around for six years whether or not you cancel the account. Choose carefully which accounts you close so you don’t get left holding a credit report full of bruises.
If you’re finding the lure of rewards cards irresistible, be very careful. There are heaps of fools who get hooked by generous sign-up bonuses or the hunt to accumulate points.
Some folks get so obsessed with their points that they completely lose sight of their growing debt.
One or two cards mean you can keep track of what’s happening. Multiple cards offering multiple rewards, or department store cards with special bonuses, mean you may end up with balances that start out small and accumulate quickly.
The interest you end up paying more than negates the points or discounts you got in the first place. How do you think they can afford to offer all those discounts?
Negative credit activity sticks around for six years whether or not you cancel the account