Brits cling on to unused credit cards

As unemployment hits 2.38 million and credit card rejections reach 3.32 million in the past 12 months, it seems 16.3 million consumers are clinging onto at least two additional credit card accounts that they no longer use, in what seems to be a desperate bid to keep a financial safety net.

New research from uSwitch.com reveals that these consumers are sitting on a total of 38 million unused credit cards with a total credit limit of £200 billion. 1.8 million consumers feel they have done the safest thing by cutting up their credit cards in order to protect themselves from overspending while 10 million claim they have just stopped using them.

Keeping these accounts open may seem like the most sensible thing to do in the current climate as it provides an average pot of £11,969 that can be tapped into at any time. With 3,178 people being made redundant every day, a property reposessed every 10 minutes and 331 declared insolvent or bankrupt every day this is hardly surprising. However, this practice could have negative connotations, particulary on credit scores as providers also examine the amount of credit available alongside the ability to repay debt on time.

As a nation we are notoriously bad at keeping an eye on our credit reports. Although the recession has created more consumer interest in these reports, our research shows that 54% of consumers have never looked at their credit report. Alarmingly, of those who did check their credit record in the last 12 months, 13% found mistakes such as payments listed incorrectly as ‘missed' and inaccurate credit limits.

Along with the negative impact on your credit score, fraud is also a consideration. Every recession is typically greeted with a surge in fraud and this is no exception. Last year alone, fraudsters enjoyed a spending spree of £54.1 million on lost and stolen credit cards. They also cashed in to the tune of £10.2 million by using cards intercepted in the post. This is the type of activity cosumers may not even be aware of if one of the 38 million dormant credit card accounts are used. These dormant accounts are easy pickings for fraudster as, in many cases, they could well be registered to an old address and it could take several months, if not years, to identify the abuse.

Louise Bond, personal finance expert at uSwitch.com, comments: "Overall it seems people are bombarded with conflicting opinions as to whether or not they should close credit card accounts that they no longer use. In times of such financial turbulence, it's hardly surprising that people don't want to let go of what they consider to be a financial lifeline. There are several issues to consider as credit checks are influenced by the amount of credit available to spend. So in effect, this lifeline could become a financial bottle neck to the next best deal.

"Hoarding as many as six un-used credit card accounts is excessive. It is a problem for both the credit card industry and individuals. In recent years, we have seen providers close down these accounts or, in some cases, introduce a fee for consumers that don't use their credit cards. This may seem harsh but these dormant accounts do cost providers money to maintain. Whilst we're not telling consumers to rush out and close down every account they do not use, if you do have as many as six a little spring clean wouldn't go amiss."

Bond's credit card tips:

Check your credit record before making any applications for credit at uswitch.com/credit-reports.

The electoral register is key, to check you must contact your local electoral registration office at electoralcommission.org.uk.

If your credit report looks inaccurate you can correct any mistakes. To do this you can add a Notice of Correction which is a 200 word statement which you can add to your file to explain any entries in your credit report.

If you are rejected for your next credit card, do not keep applying for more cards before you have checked your credit record. Failed applications for credit will have a negative impact on your credit score.

You must also close down any credit card accounts you are not using. The available balance on these accounts will be taken into consideration when you are applying for a new card.

Missed credit card payments also impact your credit score, the best way to avoid this is to set up a monthly direct debit for the minimum payment.

Sometimes, the best deals on the market are only available to new cardholders. By cancelling existing credit cards, after a time you should become re-eligible to be a ‘new cardholder'.

Don't confuse cutting up a credit card with cancelling it. Cutting it up simply stops you using it. Instead call up the card company and tell them you want to cancel. If possible request confirmation of cancellation in writing, as sometimes they don't action it.

Yet, even once you've cancelled a card, it doesn't mean the account is closed. The card company will leave it dormant but open for a while in case any payments you've made still need to come through. It's worth making a call a few months later to double check it's done and dusted.