Credit Card Risks

One of the first credit card risks is to own it in the first place. The second risk arises when you own too many credit cards. The third risk arises when you selectively use the credit cards instead of paying with cash. And, a fourth risk presents itself when you use the credit card for all transactions without doing a benefit vs. risk analysis.

I understand that not owning any credit cards is not a real option in the current society. Most of the time, our credit worthiness is judged based on a) the total credit limit creditors have granted us on our total number of credit cards or accounts and, b) our prompt payment of the monthly required amounts. But regardless, not owning any credit cards at all would present the lowest risk.

Owning too many credit cards adds to the overall risk. The second stage of the identity theft KAOS prevention system requires that we assess our personal information and actions with regards to our identity components. As we add more identity components to our personal information inventory list, we increase our risk of identity theft. It is prudent to assess the risks of owning too many credit cards vs. the benefits we gain from them. It is worth mentioning that owning too many credit cards not only increases the risk of identity theft but also may damage consumers’ credit worthiness as creditors don’t want to see too many open credit accounts either with high balances or inactive status. High credit balances present a risk to the creditors because they indicate consumers may not be able to pay their debt back, and inactive accounts not only don’t add to their revenues because credit card companies make money based on a sales percentage obtained from the merchants, but they have to spend to maintain those inactive accounts. Some consumers prefer to keep credit cards handy only for emergencies but they should limit the number of these credit cards for the reasons mentioned above.

In the third case, selective usage of credit card vs. payment with cash for some purchases would present the third lowest risk on the list. In this case, consumers are aware of the credit card risks involved and only use the card for major purchases. Some of the benefits of using a credit card for major purchases may include, product or service insurance provided by the credit card companies for lost or damaged goods, frequent flyer miles, cash or other rebates, or a great return policy attached to the card based on agreements between the credit card companies and the merchants to keep customers happy and encourage the use of their credit cards. Consumers in this category are smart and weight the benefits of their credit card usage while assessing the risks of using them. Sometimes, the benefits of using a credit card outweigh the credit card risk.

In the fourth and last case, consumers use the credits card for all transactions without any regard for the risks that they may present. The more they use their credit cards, further they expose themselves to the credit card risks and identity theft. This is not very smart because credit card risks based on usage is regardless of the amount. For example, whether you use your credit card to make a $1 purchase or a $10,000 purchase, the identity theft risk remains the same as you equally share your personal information in each case.

To conclude, consumers should own and use fewer credit cards possible to reduce the risk of identity theft and maybe even increase their credit worthiness along the way. In particular, consumers should perform a quick risk vs. benefit analysis each time they plan to use their credit cards to make a decision on whether to use them or not. With practice and trained mind set, this analysis becomes a habit and can be done very quickly. During each assessment of risks vs. benefit analysis, both risks and benefits may be slightly different based on your location, nature of the credit card, etc., but the thought process remains the same.

Learn about other credit card risks and fraud.