Canceling unused credit cards can protect you from fees, buying binges


NEW YORK -- The number of credit cards outstanding is rising at a phenomenal rate. The growth reached 20 percent in 1994, with most of the sales going to people who have cards already. The average person over 18 received 15 credit offers last year, according to MasterCard's Steve Apesos.

Buyers tumbled for cards that offered them better credit terms, rebates on purchases, frequent-flier miles and other perks.

The average household has four cards today, says Moshe Orenbuch, an analyst at Sanford C. Bernstein in New York. That's double the number of 10 years ago.

So here's the question: Are you using all your cards or do you keep some in a drawer?

The industry says that consumers have been consolidating their credit-card use, probably to build up the transactions they need for a rebate or reward. By canceling any unused cards, you might save yourself some annual fees. You also remove the temptation to go on a buying binge.

In theory, you're not supposed to be able to get so many cards. Lenders check the size of your current credit lines before they issue you a new one. In the past, they rejected people who already had a lot of credit available. Even if you weren't using that credit, you could tap it at any time. And if you borrowed to the max, you might not be able to repay.

Cards with low interest rates still follow that old-fashioned rule. But by and large, it's much easier than it used to be to acquire multiple credit cards, Michael Staten, director of the Credit Research Center at Purdue University, told my associate, Amy Eskind. Banks think they've gotten better at weeding out applicants who pose high risks. Improved technology also makes it cheaper to check your credit record, to see if you're suddenly running up unacceptable balances. If so, the banks will probably freeze your credit limit, Staten says.

But that could be too late. If your income falters, you might be tempted to run up debt rather than reduce your spending. Ruth Susswein at Bankcard Holders of America believes that banks are loosening their credit standards, even though they say they're not. If you make a late payment, some banks will immediately raise the interest they charge on unpaid balances to as much as 24.9 percent.

Along with the number of cards extant, charge volume is soaring: up 22 percent to 25 percent in each of the past three years, Apesos says. In part, that's because establishments that once ignored plastic now accept it: movie theaters, fast-food outlets, parking lots, dentists, taxicabs. In 1991, fewer than 500 supermarkets took credit cards; now more than 18,000 do. Beginning next year, even the U.S. Post Office will take cards at all of its 30,000 locations.

A second reason for increased use is that plastic has truly taken the place of ready cash. The '90s ideal is to use your cards purely for convenience and pay off your balances at the end of each month. This probably accounts for as much as 40 percent to 50 percent of credit-card volume, Orenbuch says. Convenience users get all the perks (the rebates on purchases, the frequent-flier miles) but pay no interest on balances. That's a losing formula for the credit-card issuers but a winning one for you.

Many issuers are trying to tempt you to choose their card for whatever balances you keep. "Transfer checks" are now popular; they let you pay off the debt you have on a higher-rate card with credit from another card that carries a lower interest rate.

Some higher-rate cards are fighting back by limiting the number of transfers you can make, says Robert McKinley of RAM Research, which keeps track of the industry.

This past spring, First USA in Wilmington, Del., wrote to some of its customers who pay no fee and carry no balance on their cards. It said it would cancel their accounts unless they transferred $1,000 in balances to First USA from some other credit card or charged $2,500 worth of purchases in the following six months.

First USA's David Webster says that was just a test, to try to get people to use their card more frequently -- but the letter, he added, has been discontinued.

Smart decision.

Rather than run up unnecessary interest charges, I'd tell them to take their card away.

You can write to Jane Bryant Quinn at: Newsweek, 444 Madison Ave., 18th floor, New York, N.Y. 10022.

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