Do you need more than one credit card? If you’ve ever racked up a mountain of credit card debt, you probably know the answer, which is a big no.
Taking out multiple credit cards can certainly make your debt repayments economically unviable. However, there is no simple answer to how many credit cards you should have, and having more than one credit card may even be advantageous. Most credit experts agree that having multiple credit cards can help or hurt your credit score depending on how well you manage them.
This hasn’t stopped Americans from taking full advantage of the credit cards that have been made available to them. According to an Experian report from the third quarter (Q3) of 2020, the average American now has 3.84 credit cards. This figure is down 4% from 2019, and it follows a pattern of credit card debt reduction among US consumers as the coronavirus pandemic spread financial uncertainty.
There is no fixed number of credit cards to apply for, but some recommendations can help you find your way to financial stability. The number of credit cards you have — and their consolidated credit limits — can have an effect on your credit score, which in turn affects your ability to obtain important things like car insurance and rental apartments.
Getting a new credit card might enhance your credit score.
Adding a new card is one method to expand your available credit, allowing you to spend more while still keeping a healthy usage ratio or the amount you’ve spent with your credit limit. “The smaller your balance-to-total-credit-limit ratio, the better,” Dornhelm explains.
In general, you should to maintain your utilization ratio below 30%. You may calculate it by adding up your monthly expenditures — the balances on all of your cards — and dividing the total by the sum of your limitations. For example, if you have a balance of $200 and a credit limit of $1,000, your usage ratio is 20%.
If your ratio is too high, buying a new card may help decrease it since it increases your overall credit limit – as long as your spending remains constant.
Closing outdated accounts might harm your credit score.
If you acquire a new card, don’t cancel your old ones right away. Closed accounts are removed from your credit report over time, which may diminish your account’s “average age.” Furthermore, “by canceling a credit card account, the user is removing part of their available credit,” according to Dornhelm. This may have a more instant and quick effect on your credit score.
On the other hand, open but inactive accounts will have no negative impact on your score. In fact, they may be able to aid by boosting your available credit.
There are some instances, such as when a card you no longer use has an annual charge, when it may be worthwhile to close the account, not for the purpose of your credit score, but to save money. Even in that instance, though, there may be gaps.
“You may be able to ask the credit card issuer to waive the cost or convert the account to a card product with no annual fee so you may preserve the account age on your credit reports, which can be beneficial for credit scores,” says John Ganotis, creator of CreditCardInsider.Com, to CNBC Make It.
A new credit card might provide more than simply credit.
Savvy spenders may utilize many cards to get various types of rewards. “Someone may want a card that gets higher cashback in specific areas, such as grocery or petrol, and another card that earns a flat cash back rate on all transactions to use for spending in categories where the first card would not earn more,” Ganotis adds.
So, if you’re searching for a new card, look for one that adds additional benefits and incentives to the ones you already have. Simply keep track of your annual costs to ensure that the incentives are genuinely worthwhile. And, because the application procedure necessitates a credit inquiry, do your homework before applying to ensure that it’s not just one you desire but also one you’re qualified for. One of these subtracts a few points typically from your total, but nothing severe.
If you’re satisfied with your present benefits and credit line, there’s generally no reason to add a new card to the mix.
How many credit cards should I ideally have?
The sweet spot for you as an individual is determined by your spending patterns and capacity to pay all payments on time.
According to Experian’s 2021 study, the average American has three credit cards and 2.3 retail (store) cards. In addition, most people develop their credit portfolio over time as their credit demands grow.
However, it is very important to make sure remember that you must be at least 18 years old to apply for a credit card, and you may have difficulty getting authorized if you are under 21.
When you first start using credit, it’s a good idea to develop healthy financial habits. Having a steady source of income is simply one piece of the issue. In addition, it is critical to have strong organizational skills, a firm grasp of managing money, and the capacity to fulfill deadlines.
Trying to decide between cards? Perks and rewards may make a difference.
If you’re considering getting a credit card, consider how and where you spend your money. Many credit cards provide specific rewards or other benefits that may be used in addition to your usual spending. For example, if you enjoy earning rewards points, you might want to look into the best cards for maximizing grocery, travel, or gas expenditures, as well as those that provide cashback.
It’s also OK to keep things simple. Focus on your credit practices, regardless of the number of cards you have. Paying right on time and not exceeding your credit limits significantly impact your credit score.
Possibilities for problems with having numerous credit cards
There are advantages to having many credit cards, but drawbacks are also to consider.
Credit card applications should be spaced apart.
Each credit application leads to a hard inquiry, which might lower your score by a few points. The impact is minor and short-lived. Applying for many credit cards in a very short period of time, on the other hand, might be viewed as an indication of credit risk, and all those hard inquiries add up. Multiple harsh inquiries can be avoided by spaced credit applications approximately six months apart.
Managing several billing cycles
This may sound self-evident, but the more credit cards you have, the more you must remember due dates and credit limitations. One alternative is to automate your monthly payments or change your due dates to the same day or to coincide with paydays to ensure that you remember to pay your debt in full. NerdWallet also offers a free credit score dashboard where you can watch your credit use, expenditures, and more.
Credit applications should be timed to coincide with major prospective purchases.
If you’re contemplating a large purchase, such as a new home, you should time your credit applications to safeguard your credit score. One credit card application can reduce your credit score, but the points will be restored in around six months. Keep this time range in mind while applying for credit cards.
Your credit score may face resistance as a result.
If you’re considering establishing (or canceling) a credit card, here are a few things to consider:
Your credit card use
The exact percentage of your credit limit that is used, also known as the credit usage ratio, accounts for around one-third of your credit score. So, in general, keeping your balances considerably below 30% of your credit limit helps to enhance your score, and the lower, the better.
Opening additional credit cards may improve your credit score by boosting your total credit limit. As long as you don’t spend more and raise your balances, your credit usage will reduce.
Your payment record
Your payment history accounts for around 35% to 40% of your credit score, making it the most important element influencing your score. That implies that paying on time is significantly more crucial than having many credit cards.
Your credit history’s age
Creditors like to see long, consistent credit history. However, it’s not enough to have just one truly ancient card. Your credit score considers the average age of all of your credit cards.
That isn’t to say you can’t ever close a card. If you have a good cause, such as exorbitant fees or bad service, it may be worth the risk of a brief dent in your credit score. If you have many cards with the same issuer, you can also request that your credit card be switched to a no-fee variant rather than being closed. This usually allows you to preserve your credit line, so your overall credit usage remains unaffected.
So, in conclusion, you should decide by considering your old credit history. So after taking everything that was said above into account, you will be able to determine what is the ideal decision you should make. For everyone, the choice changes, so make sure to research and make the best decision for you.