Credit cards today come with so many incentives that it almost seems irresponsible to ignore them. Zero percent interest for up to 18 months, cash back or points applied to future purchases are tied to credit cards issued by retail, airline or banks that are hard to resist. However, opening too many credit cards can lead to serious financial consequences. The temptation to overspend is the most obvious problem, but there are other ways multiple credit cards can negatively impact consumers.
Initial offers aren’t permanent
Little to no interest on credit card purchases makes those purchases just like using cash. At least, that’s how credit card companies want prospective borrowers to look at their cards. However, it’s easy to forget that the initial interest rates end after a certain period. Zero interest on purchases can rise to eight or ten percent once the introductory offer period ends after six months if the balance isn’t paid off each month. Consumers often forget or ignore this drawback.
Credit ratings can be damaged
When too many credit cards are being used without any kind of self-regulation, it’s nearly inevitable that a person will miss payment deadlines due to negligence or the inability to pay the bill. When that happens, a borrower’s credit score takes a hit. A lower credit score doesn’t just mean that a person can’t get another credit card. It can also impact the rate offered for a mortgage or a new car loan. It can even affect a consumer’s job search if the score is low enough. Credit scores have a bearing on much more than just credit card offers.
How applying for credit cards hurts a credit score
Contrary to what someone might think, applying for multiple credit cards harms a credit rating rather than helping it. Companies considering offering a credit card to an applicant look at the prospective borrower’s financial history, including how previous cards and loans have been paid off. This type of credit search results in a slight credit score drop. While one application doesn’t impact a credit score substantially, several inquiries at the same time can make the rating dip dramatically, causing companies to either offer a card with a much higher interest rate or to turn down an application. For some tips on avoiding these problems, see this helpful site.