5 Reasons Why You Should Conduct A Credit Card Inventory
It’s hard to say goodbye, particularly for credit card holders who can’t seem to let go of a favored piece of plastic.
About 38 percent of Americans say they have never changed their most-used card, or haven’t changed it in the last 10 years, according to a recent survey by CreditCards.com.
If that applies to you, you may be leaving money on the table, or missing out on beneficial perks. "Now is a great time to assess the cards in your wallet and to determine if any should be tossed from or added to your rotation," said Matt Schulz, senior analyst at CreditCards.com. "You just might discover you’re missing out on competitive credit card offers from other card issuers."
Here are five things you should consider as you take inventory of your wallet:
1. How Am I Spending Money?
It’s likely that your spending habits have changed since you first opened a credit card account. It’s a good idea to sit down and really think about your lifestyle and spending habits, and how you can get the most out of any card.
For example, when you first graduated from college, eating out with friends may have been a common activity, leading you to sign up for a card that rewards you with more points for money spent on dining. But if you’ve since married and had kids, you may find yourself mostly cooking at home, with date nights at a restaurant a rare luxury.
In that case, the card you signed up for at 22 years old may no longer make sense. Instead, you may find that you want to look at a card that offers more points for money spent at a grocery store rather for money spent dining out.
2. Do the Fees Make Sense?
"It’s imperative to reassess whether the annual fees you’re paying for your credit card are worth the benefits you receive," Schulz said. Are the benefits actual benefits? Or do the “benefits” lead you to spend money you would otherwise.
For example, if a hotel credit card provides the occasional free night in a low-category hotel property, think about whether you would take that getaway — and incur all the other expenses of that trip — without that “perk”?
Fees are something you should consider in the long-term.
“If you’re planning on using the card for a decade or more like many people are, you’re smart to focus more on fees and interest rates than on sign-up bonuses because those costs are still going to be around long after that buzz of that signup bonus has passed,” Schulz said. And don’t forget, some cards have no fees at all and still offer perks to their card members.
3. How Can I Maximize Rewards?
Are you aware of all the benefits of your credit cards? Turns out, many consumers aren’t, and that may mean leaving money on the table.
In fact, about a quarter of U.S. cardholders don’t know whether their favorite card has purchase protection, according to the CreditCards.com survey. That might mean paying for an extended warranty on a product — when your credit card would provide that warranty free of charge (or as part of your annual fee).
Similarly, do you know the best way to redeem points? Some cards may let you redeem your points at a preferred rate in different categories, such as travel or cash back. If you keep that in mind, you may be able to get more bang for your buck.
Of course, it’s a good idea to ensure you redeem points in a manner compatible with your lifestyle. Your card may let you redeem your points at a preferred rate for a gift card to a restaurant or department store, but if those are businesses you never frequent, your points may end up going to waste.
4. Are There Better Options Available?
As you begin to build a responsible credit history and improve your credit score, credit card offers generally get more enticing. Typically your first credit card is the least advantageous card you’ll ever have, with a higher APR and fewer benefits since younger borrowers with less credit tend to be riskier customers for issuers.
“Ideally a young person would treat their first card like a stepping stone before graduating to a new card pretty quickly,” Schulz said.
It might seem that applying for a new card which registers as a “hard inquiry” on your credit profile would be a bad idea. Indeed, Schulz says you should avoid applying for multiple cards at the same time, because each hard inquiry will likely affect your credit score for months.
But with responsible management, sometimes getting a new card can actually help your credit score as positive factors such as a higher available credit limit outweigh the effect of the hard inquiry in your credit history (more on that later). And if a new card means better rewards more suited to your lifestyle, the long-term benefits can add up.
But if you are generally happy with an existing card but for one or two current terms, don’t be shy about contacting the card provider.
“It’s an incredibly competitive time in the credit card marketplace simply because people are spending again,” said Schulz.
A credit card issuer won’t necessarily give you the shiny bonus offer they offer to new customers, but they may reduce your interest rate or waive a late payment, if you ask.
5. Don’t Rush to Cancel
If you find an attractive new card, you may be tempted to immediately cancel your older cards, but think twice before doing so. Your oldest card can be an important part of your credit score, since two major components of that score is the length of your credit history and credit utilization.
While your credit score is made up of a number of factors, one of those factors is the length of your credit history, including not just the age of your oldest account, but also the average age of your accounts. If you close your oldest account, you will both shorten the length of your history and reduce your average age.
On top of that, you will eliminate the available credit line associated with that card, which may send your credit utilization — the amount of credit you use in a month versus the total credit line available to you — soaring.
For example, if you currently have $1,000 on all your credit cards, and a total credit limit of $10,000 across three cards, your credit utilization is 10 percent. If you close one of those three cards and that card has a $5,000 limit — reducing your total credit limit to $5,000 — suddenly your credit utilization would jump to 20 percent.
If you no longer see a need for your older cards, it may be best to simply leave them at home. Most fee credit cards have no-fee versions. If you have such a card, you can always call up your card provider and ask them to change you to the no-fee version.
However, if moving to a no-fee card isn’t an option, it may be worth cancelling the card and taking a temporary ding to your score rather than to continue to pay for a card that you don’t use.