Too Many New Credit Cards Can Add a Bah, Humbug to Post-Holiday Credit Reports

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OpenSky reminds consumers to be careful opening retailer-branded cards as they may impact credit scores.

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For holiday shoppers this winter, retailers are sweetening the appeal of store credit cards by offering immediate discounts and rewards that are hard to resist. Results of a survey released by Credit.com just before Black Friday reports that nearly three out of 10 consumers opened store-branded credit accounts during the holiday shopping season(1). Almost half, though, reported they were sorry for their actions because they already had too many credit cards or too much debt.

Consumers are right to have second thoughts about impulse credit. Opening too many new store accounts—or getting too many of any kind of credit cards at one time—can impact credit scores. Every time anyone applies for credit a “hard inquiry” goes on credit reports, and can stay there for 25 months(2). Something else to consider is that new cards lower the average age of accounts—and credit history length is a factor that makes up 15 percent of a total FICO score.

Also, stores offer lower lines of credit than most general use credit cards—one large-ticket item might max out the card. This can effect credit utilization, also called debt-to-credit ratio, which accounts for 30 percent of a credit score; experts recommend carrying a revolving balance of no more than one-third of the credit limit. So unless consumers can pay off accounts each month, high balances, maxed out cards and too many credit cards can collectively lower their credit scores, lengthening the time it takes to build better credit.

So especially if consumers are facing important purchases in the near future such as a car, home, or mortgage refinancing, they should consider holding off on new credit. Lower credit scores may cause lending institutions to offer higher interest rates on big loans—and higher interest rates translate to higher monthly payments that over time will far outweigh the one-time discounts when those credit accounts were opened.

OpenSky recommends paying with general use credit cards during the holidays that can be used more widely for purchases and carry, on average, a much lower APR (annual percentage interest rate) than store credit cards(3). Even better, use just one card for all holiday purchases to easily track balances through an online account—and keep spending habits in check. And while store credit is traditionally easier to get than bank cards for people without much credit history, the OpenSky® Secured Visa® Credit Card is easy to get, easy to use, and builds credit history. With OpenSky, cardholders set their own credit limits that work with their budgets. And staying within budget is a nice gift to yourself when January rolls around and it’s time to pay for all those holiday purchases.

About OpenSky:
OpenSky is a business line of Capital Bank, N.A., a full service commercial bank in the Washington, D.C. metropolitan area. A top-ranked bank based on performance, it is the only bank in Maryland and Washington, D.C. to make the American Bankers Association Journal (ABA Journal) list of top 100 performing community banks in the class of over $100 Million in Assets. With more than $550 million in assets, Capital Bank offers a full range of banking services including cash management, commercial lending services, residential mortgage and consumer credit. For more information about the Bank, visit http://www.capitalbankmd.com. Member FDIC. An Equal Housing Lender.

Sources:
1.    Credit.com, November 19, 2014, http://www.credit.com/press-releases/shocking-number-americans-feel-bullied-by-retailers/
2.    Experian.com, http://www.experian.com/consumer-products/credit-report.html
3.    CreditCards.com, November 25, 2014, http://www.creditcards.com/credit-card-news/retail_card-stores-survey-apr_2014-1276.php

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Ksenia Valentine
Open Sky Card
since: 08/2011
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