Frequenly Asked Questions

Question index

Can my spouse’s credit history affect mine?

Your credit history is separate and unaffected by your spouse’s credit history. Marrying someone with bad credit will not lower your credit score, just like marrying someone with good credit will not boost your own credit score. Also, any changes in your spouse’s credit, good or bad, will not cause any type of change in your credit.

The only time your credit score can be affected by your spouse’s is if you apply for a line of credit together. For example, if you have a high credit score and your spouse has a low one, cosigning for a loan may result in a higher interest rate than if you applied for the loan by yourself. Another thing to consider is that when you and your spouse apply for a joint line of credit like this, you both share full responsibility for the loan. So, paying off the loan on-time or early will be a positive point on both of your credit scores. Likewise, missing or making late payments will show up on both of your credit reports.

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What’s the best possible credit score?

The best possible credit score will depend on where you get your credit score from. This is because different credit bureaus have different rating systems. The two national powerhouses in terms of credit scores are FICO and the trio of nationwide consumer reporting agencies: TransUnion, Equifax, and Experian, all three of which use the VantageScore system. The optimal credit scores for each of these is below:

However, you do not need to have the absolute highest score possible to be considered in good credit. For FICO, a good credit range is anything 720 or above, though 723 is ideal to be considered in great credit. Having good to great credit means that you’ll typically have lower interest rates and will typically qualify for more lines of credit ó such as a mortgage or car loan ó than if you had poor credit.

For VantageScore through TransUnion, Equifax, and Experian, having anywhere between a 701 and 990 (the highest) is good, as you’ll be considered to have good credit. However, strive to have at least a 801 VantageScore, as that means you’re far from having poor credit.

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Can an employer ask for my credit score?

According to Section 604 of the Fair Credit Reporting Act, your credit report may be given to an employer. The Federal Trade Commission states that your credit report may be used for hiring, promotion, reassignment, and retention purposes, but the employer must have your consent before accessing your credit report.

However, a credit score is different from a credit report. A credit score is a numerical ranking of your level risk when it comes to paying your credit obligations. Your score can be added to your report if you chose to do so, but this number is typically not needed for employment purposes because the employer can learn about your credit history through the report, and then gauge your level of responsibility based on this information. In fact, according to Privacy Rights Clearinghouse, TransUnion, Equifax, and Experian will prepare an employment credit report that does not include, among other things, your credit score.

Employers may want to see your credit report to look for patterns in your financial history that may indicate poor planning or decision-making. For example, if you have declared bankruptcy, an employer may see that as a red flag from your credit report. But if you have shown in your credit report that you have since taken steps to improve your credit, employers may see that as a positive aspect of your personal responsibility, according to U.S. News Money. In addition, if you are looking into a position that deals with money, an employer may judge your ability to handle your money by your capability to handle your own financial history.

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What’s FICO?

FICO is short for Fair Isaac and Company, the company that has set the standard in the U.S. for measuring consumer credit risk in the credit card, banking, mortgage, auto, and retail industries, according to their website. This standard is used to analyze a consumer’s credit history. FICO uses an individual’s spending and credit information to generate a credit score that shows the likelihood of the customer paying their credit obligations on time.

Many credit reporting companies use FICO scores. These scores will be used by lenders to determine a consumer’s risk level and whether or not to approve the consumer for a line of credit and, if approved, the maximum amount of credit available to them and the interest rate they will be required to pay. For example, if you go to the bank to take out a loan to purchase a car, the bank will likely use your credit report to determine whether or not to loan you the money to begin with, as well as how much interest to charge if you are approved for the loan. Typically, the higher and better your credit score, the lower your interest and/or premium will be.

In most cases, the score provided by each of the three agencies ? Equifax, TransUnion, and Experian ? will differ, even though they are all FICO scores. This is because each agency may gather different information from a consumer’s credit history, which is then factored into their score.

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What’s the best way to build credit?

Basically, you have to use credit to build credit. This doesn’t mean just start charging everything to a credit card. You want to build good credit, and racking up a bunch of credit card debt is not the way to do it. So, what’s the best way to build credit?

There are two primary ways that someone with little or no credit can establish credit: having a secured credit card and using it wisely, and being a cosigner on a loan.

A secured credit card is a good way to start, as long as you use it wisely. Keep in mind, though, that your lack of credit may require someone to cosign with you. Once you have your credit card, use it as much as you can without acquiring debt. In other words, start small. Charge purchases that you can afford and then pay off your credit card bill as quickly as possible. This will start to build a credit history of on-time payments and little-to-no debt. And hopefully, this will also help you develop a pattern of smart spending, which may allow you to maintain good credit in the future. Once you build a little credit, try applying for a credit card without a cosigner.

Another way to start building credit is to be a cosigner. As a cosigner, you will be just as responsible for the debt as the primary holder, so the rate at which it gets paid off will be reflected in your credit history. There are two main ways to go about this, and they both involve a family member or friend who’s willing to take a risk and help you out. One way is to cosign on someone else’s loan. For example, if your father is going to buy a car, see if he will allow you to cosign. The other way is to have someone be the primary holder on a loan for yourself, and let you cosign on it. For example, if you buy a car, but the loan is in your father’s name, you can be attached to it as the cosigner and then make your payments. Doing this may also allow you to get a better interest rate, depending on your father’s credit.

One or both of these will allow you to start building credit and establish a credit history. But keep in mind that bad credit results in many negative things, including being denied for loans and having to pay higher interest rates, so strive to build and maintain good credit by limiting the amount of debt you have and making sure all of your payments are done on time.

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How quickly can I repair my credit score?

If you’ve ever applied for a loan, financed a car, bought a house, or sought any other line of credit, you know that your credit score is a huge determining factor when it comes to you being approved, the amount of credit available to you, and the interest rate you will have to pay. Your credit score is based on your credit history, so lenders use it to determine the likelihood of you making your payments. A lower score leads lenders to believe that you are less likely to make your payments and will either deny you or charge you a high interest rate. So, if you have a low credit score, how quickly can you fix it?

Unfortunately, there isn’t a quick-fix option when it comes to raising your credit score. Improving your credit takes time. Your credit score is based on the amount of debt you have, your payment history, the number and severity of late payments, and the number and types of accounts in your name. The more debt, late payments, and accounts you have, the lower your score will be.

Since your credit score is based on your credit history, when your score is low, it means that the negative points are outweighing the positive. Therefore, to raise your score, you have to work to reverse this and make the positive outweigh the negative. This is why repairing your score takes time. Good points won’t replace bad points ó they will simply be factored in with the rest of your credit history.

Experian, one of the three nationwide consumer reporting companies, offers suggestions for improving your score, such as paying your bills on time, paying off your debt, and limiting the number of accounts you open. They also suggests that you obtain a copy of your credit report and read what information is contributing to your low credit score, including the elements that are having the greatest impact. Knowing this can give you a starting point for repairing your credit and may increase your score at a more rapid pace.

Overall, if you have a low credit score, don’t panic. You can improve it. You just need to learn what is bringing your score down and work to improve those elements. It is going to take time, so be patient. Having a high credit score will be worth all the time and effort you put into improving your credit history.

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How long will bad credit affect me?

Most people want to do everything within their power to avoid having bad credit, a low credit score, and negative points on their credit report. After all, your ability to get a mortgage loan for a home, or an affordable car loan, or even a job can depend on the strength of your credit score. Low credit scores indicates to lenders that you are at a higher risk of missing payments or sending in your payments late, so lenders may either refuse to lend to you at all or make up for that risk by charging you a higher interest rate or giving you a higher premium. Unfortunately, bad credit is not entirely uncommon. Everything from poor decisions, unexpected expenses, and issues beyond your control can lead to bad credit. When this occurs, the most common question people ask is, “How long will this stay on my record?”

According to Section 605 of the Fair Credit Reporting Act (FCRA), the answer is seven years for most negative points. Bankruptcy will remain on your record for 10 years, and unpaid tax liens will remain for 15 years. However, each state has its own set of statutes and regulations pertaining to credit reports and the amount of time bad credit must remain on your report, so check with your state’s department to learn about the specifics.

CourtCheck.com, a FCRA compliant background check and employment screening service, has compiled a list of every states’ laws as they pertain to credit reports. According to this list, most states abide by the FCRA, though some allow bad credit to be removed in a lesser amount of time or state that certain items are not bound by the seven year time period in their state.

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Is it a good idea to avoid credit cards?

You can’t have a credit report without a credit history, meaning lenders will tend to deny you loans, insurance, a lease, or credit without a history by which to judge your financial responsibility. This means that without a credit card, your options are limited. This is a bit of a catch-22: you can’t have credit without having credit, or you can’t build credit unless you first open some lines of credit. But there are few ways to start your credit history.

Cosigner

It might be necessary to establish a cosigner to build credit, or to have someone add you as a joint account holder. According to Experian, parents may help their children build credit by authorizing them as users on an existing credit card account. The account will be reported in the child’s credit history, but they won’t be responsible for the debt. You may also make them joint users, wherein they will share full responsibility for the debt.

Secured Credit Card

Another way to establish credit is by applying for a secured credit card. A secured credit card requires a security deposit, which matches the card’s credit limit. The best way to have your secured card reflect positively on your credit score is to make regular payments. In addition, you don’t need to use a secured card to improve your credit score, since a secured card with no balance will be reported as “in good standing,” according to FICO. However, actively using a secured credit card responsibly can be a good way to practice good credit card habits, which may come in handy should you ever decide to get a regular credit card.

Canceling Credit

Before canceling a credit card, first consider the affect it will have on your credit score. Your credit score is partially determined by the amount of available credit you have, so a reduction in the amount of available credit has the potential to lower your score. But if you have a high debt-to-credit ratio, canceling a card may result in a significant credit score reduction when you close an account. Think this through before taking action to ensure that closing the credit account will impact you positively.

Multiple Cards

While having credit will increase your credit report, credit applications will reduce your credit score, according to Reuters. Unused credit is beneficial to your credit score as long as it remains unused credit. Overusing credit, on the other hand, will be detrimental to your score. Limit the number of credit cards you have to reduce the chance of overspending, and also to reduce to the chance of falling into debt.

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Do I have to pay for my credit score?

The Fair Credit Reporting Act allows credit bureaus to charge a fee for credit reports, which can include your credit score, according to the Consumer Financial Protection Bureau. You may be entitled to a free credit score, though, if applying for a residential mortgage loan, when receiving an adverse action notice (for instance, if a leasing application is denied), or if you’ve received credit on terms less favorable than the terms available to most consumers receiving credit from that lender.

However, you are entitled to a free credit report from each of the major crediting bureaus annually under the Fair and Accurate Transactions (FACT) Act. The Fair Credit Reporting Act (FCRA) also entitles you to a free credit report in the event that you are a fraud victim or you have reason to believe you are a fraud victim, if you’re unemployed and are seeking employment, or if you’re on welfare. The information within your credit report is reflected by your credit score.

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How often can I request a credit report?

The Fair and Accurate Credit Transactions (FACT) Act gives you the right to one free credit report once every twelve months from each of the credit reporting companies. Additionally, the Fair Credit Reporting Act (FCRA) allows you a free credit report if you are unemployed and seeking employment, receiving welfare, if you are a fraud victim or have reason to believe you’ve been the victim of fraud, or if a lender has denied your application or has taken other adverse action you may request the report from the company the lender received the credit report from.

According to Experian, some states allow their residents free credit reports in addition to the report they’re entitled to under the FACT Act. You must request these reports, excluding the free annual credit report from the FACT Act, from the credit reporting companies. Additional reports may be requested from the three national credit reporting companies for an additional fee at any time.

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Does it hurt my credit to request a credit report?

A credit report is a necessary indicator of your personal finances, since it reflects your ability to obtain credit, so inquiring into your credit report at least once a year, Experian says, is an advisable practice to monitor your ability to obtain credit. Keep in mind, though, that every inquiry on to your report, including your own inquiries, the inquiries of businesses and the inquiries of other individuals such as lenders, is listed on your credit report.

Even though business inquiries and your own inquiries into a credit report are listed on your credit report, only inquiries that result from your applications for new credit count toward your FICO score. While credit applications have a negative effect on your credit score, more unused credit will have a positive effect on your credit score in the long term.

Experian states that there are two types of credit inquiries: those that appear on your personal credit report and those that are shown to lenders when you apply for credit. The latter affects your credit score, and only consists of applications for credit or services that impact your finances, such as a lease or a loan. Since those inquiries represent lending risk, Experian states, they impact your credit score.

Under the Fair and Accurate Credit Transactions (FACT) Act, individuals are entitled to a free inquiry into their credit report once a year. Under the Fair Credit Reporting Act (FCRA), you are allowed a free credit report from the company that provided the report to the lender if your application is declined or another adverse action is taken. The FCRA also allows you to receive a free credit report if you are a fraud victim or have reason to believe you are the victim of fraud, if you are unemployed and searching for employment, or if you are receiving welfare services.

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Is a credit report the same as a credit score?

A credit report, according to FICO, is a credit history used by lenders, insurers, and employers to determine your financial responsibility. A credit report includes information about an individual’s identity, credit information, public record like court judgments, tax liens, or bankruptcy filings, and company or individual inquiries on the credit report. Three major credit bureaus ó Equifax, Experian, and TransUnion ó gather and update this information and provide it to inquiring companies or individuals like lenders. This information is collected from the individual’s bank, credit card issuer, and other creditors, as well as from public records.

A credit score reflects the information within a credit report and helps lenders determine the likelihood an individual will repay a loan and make regular payments. Credit bureaus may calculate your credit score based on the number and type of accounts, regular payment, available credit, any collection actions against the individual, outstanding debt, and the age of the individual’s accounts, but the formula for how this information is weighed varies depending on the credit bureau.

You are allowed an annual free credit report once every 12 months from each of the three major credit bureaus under the Fair and Accurate Credit Transactions (FACT) Act, and the Fair Credit Reporting Act (FCRA) entitles you to a free credit report if you are the victim of or have reason to believe you are the victim of fraud, if you are unemployed and seeking employment, if you are receiving welfare, or if you have had adverse action taken, such as a lender has denied your application, in which case you are entitled a credit report from the company the lender used. Additional credit reports require a nominal fee, though some states allow residents additional free credit reports or credit reports ate reduced prices.

A new credit score is calculated every time you request a free credit report and ask for a score, according to Experian. Since your credit history is continuously updated, the credit score will reflect your credit report at the point from which it was calculated, and may not necessarily reflect the report when the score is received.

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Why are there multiple credit scores available?

Credit scores are used to determine an individual’s risk for lenders, but there are multiple lenders that use their own scoring systems. The most commonly referenced credit score is the FICO score, developed by the Fair Isaac Corporation (FICO) in 1989. Fair Isaac developed the FICO score to help determine mortgage rates, and made the score available to consumers in 2001 as a gauge of credit standing. FICO made three different FICO scores for the three credit bureaus ó Equifax, Experian, and TransUnion ó and each of the three, while utilizing the same information, tend to differ as they determine their scores through their own formulas. All in all, there are multiple credit scores available ó though all based on the same information about you ó because different lenders give more priority and weight to different credit habits.

According to FICO, scores may differ if an individual’s credit information is not reported to all three credit bureaus or is reported at different times, or if a credit application is filed under different names (such as nicknames or maiden names) or filed incorrectly due to incomplete or inaccurate data.

While FICO scores are the most common, lenders may use other scores to determine your financial risk, either based on FICO scores or by their own evaluation. For example, SmartMoney.com reports that auto lenders use an auto-industry score based on FICO, credit card issuers use a bank-card FICO score, and insurers use credit-based insurance or auto and homeowner’s insurance scores. All credit scores are based on the information in your credit report, but since each score is determined with a different formula, the scores will vary.

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How does declaring bankruptcy affect my credit?

There are two types of bankruptcy plans for individuals: Chapter 7 Bankruptcy and Chapter 13 Wage Earner Plan. In general, an individual with overwhelming unsecured debts may want to file chapter 7 if he or she is willing to surrender property and not owe for it. An individual with secured debts and a threat of foreclosure or repossession, or who has previously filed chapter 7, or has debts not dischargeable in a chapter 7, but payable in a chapter 13 may want to consider filing a chapter 13.

Chapter 7

Chapter 7 is filed by submitting a list of all creditors, their claims amounts and the nature of their claims, information about the debtor’s income including the source, amount, and frequency, a list of the debtor’s property, and a list of the debtor’s monthly living expenses. Chapter 7 bankruptcy does not involve filing a repayment plan, whereas Chapter 13 does. Instead, the debtor’s nonexempt assets are gathered and sold to pay creditors according to the Bankruptcy Code.

Chapter 13

The Chapter 13 Wage Earner Plan requires the same materials as Chapter 7 to be submitted. Chapter 13 offers an opportunity to save the individual’s home from foreclosure and reschedule secured debts and extend them over the life of the chapter 13 plan, which may lower the payments. Under chapter 13, according to the United States Courts website, individuals make plan payments to a chapter 13 trustee who distributes payments to creditors. Creditors and individuals have no direct contact while under chapter 13 protection. Earning more than the average wage within the filer’s state and for the size of the individual’s family usually requires chapter 13 filing.

How Bankruptcy Affects Credit

In terms of credit, your credit debt history will reflect that bankruptcy was filed. Whether filing Chapter 7 or Chapter 13, your score will be affected in the same way. FICO states that your credit score is then determined by your regular payments after the bankruptcy filing. Bankruptcy may force the filer to sell assets to meet bankruptcy filing requirements, most likely in Chapter 7, and should not be filed depending on credit score alone. However, bankruptcy may provide enough relief to begin credit score repair if debt payments become overwhelming.

According to FICO, declaring bankruptcy will be filed in your credit report. Chapter 7 bankruptcy will stay on a report for 10 years, and a completed chapter 13 bankruptcy will stay on a report for up to seven years from the date filed.

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What happens to my credit if I cancel a credit card?

Before your cancel your credit card, you may want to educate yourself on the potential effect it can have on your credit score and overall finances. Cancelling a credit card can be a good idea if you’re being charged high annual fees or you can’t seem to stop overspending. However, cancelling a card also has the potential to hurt your credit score.

By closing a card, you are reducing your total available credit, which can be problematic if you have balances on any of your remaining cards. Since one of the major factors in determining your credit score is your ratio of debt to unused credit, cancelling a card can increase that ratio, making it appear as if you are utilizing more of your overall available credit, according to MyFICO, the consumer division of the Fair Isaac Corporation.

Therefore, people with a high level of debt on their other cards could experience a significant credit score reduction by closing an account, particularly if that account had a high limit. On the other hand, if you have low or zero balances on your other cards, your debt-to-credit ratio will not be affected, and you should be able to cancel your card without suffering adverse effects to your credit score.

Will I Lose My Credit History?

Many consumers worry that they will lose any good credit history associated with their card if they cancel a card. However this is actually not as big of a concern as it may seem. The systems used to calculate your credit score take into account the average age of your credit accounts when assembling your credit score, not merely your oldest card, according to credit expert John Ulzheimer, credit blogger for Mint.com. Both open and closed accounts are taken into consideration, Ulzheimer notes. A closed account (including the good credit history associated with it) will remain on your credit report for 10 years, unless it is removed sooner by the credit card issuer, according to Barry Paperno in BankRate.com

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How do I close a credit card account?

Consumers choose to close a credit card account for various reasons, including non-use, receiving poor customer service, or because they are dissatisfied with interest rates or fees. Others who are digging themselves out of debt may wish to close a credit card account or two to eliminate the temptation to overspend. However, you should carefully consider the pros and cons of closing an account before you do so, since closing a credit card account under certain circumstances has the potential to lower your credit score.

The Potential Impact on Your Credit Score

Before closing an account, consider how it might affect your credit score. If you have balances on any of your remaining cards, closing the card could increase your debt-to-credit ratio, according to MyFICO, the consumer division of the Fair Isaac Corporation. This ratio is a major factor in determining your credit score, and makes it appear as if you are closer to maxing out your total available credit.

Therefore, if you must close an account, it might be smart to mitigate the effect it will have on your credit score by reducing the balances on your other cards and/or calling up your other credit card companies and asking for an increase of your credit limits before doing so. Experts also discourage consumers from closing a credit card account if it is their only card, according to CBS Local.

Steps to Closing Your Credit Card Account

Before closing a credit card account, personal finance blog Get Rich Slowly recommends making sure that you have either paid your entire remaining balance on the card or had the balance transferred. To close your account, call the customer service number on the back of your card (also on your credit card statement), verify that you have no remaining balance, and request that your card be cancelled. In addition, send written confirmation of cancellation to your credit card issuer requesting written confirmation of the cancellation. Lastly, request your credit report in the next few weeks to verify the account’s cancellation, bearing in mind that it might take a while for the change to show up on your credit report.

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How many credit cards is too many?

Many consumers wonder if they have too many or too few credit cards to their name. Others hope to discover whether there is an ideal number of credit cards they should have to maintain a good credit score. The answer is both simple and complex. The simple answer is no, there is no perfect number of cards for an individual to have in order to maintain a good credit score. Even so, a high number of credit credits can lead to, but not necessarily cause, a great deal of credit trouble for consumers who do not use credit responsibly, thereby leading to a lower credit score. For other consumers, however, having a large number of cards that they use regularly and pay off at the end of each month has no negative effect on their credit whatsoever.

How many credit cards you have is far less important in regards to your credit than how you use those cards, writes Mint.com credit blogger John Ulzheimer. Ulzheimer maintains that having a large number of credit cards in general is not the problem, but associated problems, such as having a great deal of credit inquiries at once (from applying for too many cards in a short timeframe) or having too many credit cards that all carry a balance from month to month are the damaging factors in having so many cards.

Taking Credit Utilization Rates into Consideration

Consumers should remember that one of the factors that leads to a lower credit score is having a high debt-to-credit ratio, also known as a high credit utilization rate. In other words, credit bureaus take note of how much debt you have compared to your total amount of available credit. Ulzheimer, who wrote that he had 14 cards, said he did not suffer any adverse effects to his credit score because each was paid on time and maintained a zero balance. The result would be much different for someone with 14 cards who maintains a high balance on each, he explained.

With this in mind, consumers should note that having two cards with balances that are close to their limits can be more damaging to their credit score than having 10 cards, a couple of which have low balances. Experts recommend having between two to five low-interest credit cards that they pay off on a regular basis, keeping balances below 50% of their maximum available credit, according to personal finance blog Get Rich Slowly, although blogger J.D. Roth writes that he would ultimately prefer his readers not to have credit cards at all.

Considerations on How Many Credit Cards to Have

It’s no secret that a large number of Americans are in serious debt. If you have had debt issues in the past related to overspending, you should be cautious about opening new lines of credit, as it will only increase the temptation to overspend. After all, having a large amount of credit isn’t doing your credit score any favors if you’re using nearly every last bit of it and are finding yourself hard pressed to pay down a mountain of debt.

For those who do not fall prey to overspending, experts also recommend slowly acquiring cards over time, and only as you find you could benefit from them, rather than going on an “application binge,” according to Reuters. Every credit card application involves a credit check by the card issuer, a process that temporarily reduces your credit score, so applying for credit cards one after the other in short timeframe has a negative effect on your credit.

Finally, keeping a smaller amount of credit cards can help keep things simple for many consumers. After all, remember that consumers are urged to use all of their credit cards at least once or twice a year to keep them active. It can be tricky to remember to do this if you have seven or more cards, and you really only use one or two on a regular basis. In addition, many consumers find it difficult to keep on top of payments for a large number of cards. So for the busy and/or disorganized consumer, keeping the number of credit cards low could be in their best interest.

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