Consumers should pump the brakes on new credit cards


In 2008, Americans consumers held a staggering total of 496 million active credit card accounts. It was the most open credit cards ever in our country’s history.

The financial collapse that soon followed dropped that figure by nearly 25 percent over the course of two years. As of 2010, open credit accounts totaled less than 380 million.

That plunge made sense. After all, it was our overreliance on credit cards and loans with less than favorable terms that put us all in such a bad position in the first place. Even as the economy began to right itself, Americans were largely wary of spending beyond their means.

Oh, how quickly we forget

Now credit card usage is back on the rise. There are presently more than 435 million open accounts in the United States and it’s predicted that we’ll surpass our 2008 peak in less than two years.

That increase has been driven largely by credit card companies looking to entice consumers back to charging by offering increasingly favorable rewards, including big cash back bonuses and low introductory rates. Creditors mailed out 4 billion credit card offers last year, which is enormous compared to the 1.8 billion that went out in 2009.

Consumers, for their part, are taking the bait. Thanks to a stable economy, consumers once again seem comfortable taking on debt – credit card debt is rising at the fastest rate in six years, with balance totals reaching $644 billion earlier this year.

Pump the brakes on borrowing

As counterintuitive as it may sound, heavy consumer borrowing is a sign of a strong economy. So it’s good that consumers are confident enough to begin charging once again. But as with all good things, there must be moderation.

Consider the following before saying “yes” to any of the 30 or so credit card offers currently sitting in your mailbox:

How much credit can you handle? Having access to credit inevitably raises the possibility of you using that credit. While a high credit limit can be useful in case of an emergency, eventually you need to pay back that debt. So how much debt can you reasonably handle? Aim to keep your cards and associated credit limits within a manageable range.

Consider your credit score. New accounts reduce the average age of your accounts, which can have an adverse effect on your credit score. Be wary of opening new credit card accounts if you need your score to be pristine in the near future.

Can you stay in control? The more credit cards you use, the higher the likelihood that things will get away from you. That means both spending beyond your means and simply losing track of your bills and payments. If you’re going to open more accounts make sure you have a system in place to help you successfully manage those accounts.

Don’t let your cards dictate your spending. One of the downfalls of all these great credit card offers is that they’re designed to entice you into spending money you may not have spent otherwise. Double cash back rewards sound good until you find that you’re spending beyond your means in order to achieve your rewards. A good credit card should help support your financial goals, not radically alter your spending habits.

Jesse Campbell is the Content Manager at MMI, focused on creating and delivering valuable educational materials that help families through everyday and extraordinary financial challenges.

  • The Consumer Federation of America (CFA) is an association of nonprofit consumer organizations that was established in 1968 to advance the consumer interest through research, advocacy, and education. Today, nearly 300 of these groups participate in the federation and govern it through their representatives on the organization's Board of Directors.

  • The mission of the U.S. Department of Housing and Urban Development (HUD) is to create strong, sustainable, inclusive communities and quality affordable homes for all. HUD works to strengthen the housing market in order to bolster the economy and protect consumers; meet the need for quality affordable rental homes; utilize housing as a platform for improving quality of life; and build inclusive and sustainable communities free from discrimination.

  • The Council on Accreditation (COA) is an international, independent, nonprofit, human service accrediting organization. Their mission is to partner with human service organizations worldwide to improve service delivery outcomes by developing, applying, and promoting accreditation standards.

  • The National Foundation for Credit Counseling® (NFCC®), founded in 1951, is the nation’s largest and longest-serving nonprofit financial counseling organization. The NFCC’s mission is to promote the national agenda for financially responsible behavior, and build capacity for its members to deliver the highest-quality financial education and counseling services.