The Right Number of Credit Cards

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Why would you need or want more than one credit card? Here are several benefits to consider:

  • Build and improve your credit history
  • Gain extra perks and earn credit card rewards
  • Learn to budget money more efficiently
  • Simplified accounting and taxes

How many credit cards should I have?

The right number of credit cards will depend on your personal needs and objectives – and it varies from person-to-person. One credit card is sufficient for many people, while 2-3 is more common for most consumers. But before you start applying for offers, here are two factors to consider:

Effective Management: No matter how many credit cards you use, it’s extremely important that you learn how to manage them effectively. To do this, make sure you know the details of each card (i.e. APR, outstanding balance, cash advance and balance transfer fees, etc) and make sure you’re able to pay at least the minimum payment for each card every month.

Your Credit History: Another factor to consider is how many credit cards will best allow you to maintain, repair or build a strong credit history – and ultimately raise your credit score. Too many credit cards might actually have a negative impact on your credit rating, while too little credit will make it hard to get approved for mortgage or auto loan.

Benefits of Using More than One Card

  1. Manage Household Expenses: Keep one card for your family and household purchases and another card for business expenses. This way, you can easily monitor how you’re using your resources and review / modify them to better meet your financial needs.
  2. Benefit from Reward Cards: Use a low APR credit card for long-term charges, and a reward credit card for short-term charges. This way, you’ll save money when you carry a balance – but you’ll earn bonuses when you payoff your new purchases quickly.
  3. Simplify Your Taxes: By keeping your business and household expenses separate, you can simplify the hassles of tax season. Many credit card companies send out quarterly or year-end summaries showing all your purchases by category, ie: fuel, retail, dining, travel, etc. which will assist you in separating all your taxable expenses.
  4. Keeping within Limits: If you’re reaching 50% or more of your credit limit on any one credit card, it is in your best interest to pay it down – or apply for another card. Your credit score will take a hit when you go beyond 50% of your available credit. Lenders worry about higher default rates and credit agencies think you pose more of a risk.
  5. World Wide Web Purchases: Protect yourself by making all your online purchases with one credit card. By having all of your web purchases on one card, you’ll immediately see any unauthorized discrepancies on the monthly statement. The actions that need to be taken to fix the problem won’t interfere with your other financial obligations.

CAUTION: Too many cards?

Keeping track of purchases and controlling spending are the biggest concerns when using multiple credit cards. If you’re not organized it can create havoc, especially if you carry a balance each month. With multiple bills and payment dates, it may become confusing – making it easier to be late; or even worse, missing a payment entirely. By limiting the number of credit cards you use, you’ll be less likely to incur late fees or other penalties.

Effects on your credit score

The number of credit cards you carry can affect on your credit score. Keeping up with payments on fewer cards that carry higher balances is considered positive credit behavior. Likewise, having too many credit cards with smaller balances implies you are a potential risk of late or non-payment. For example, it’s better to have one credit card with a $3,000 outstanding balance than 3 credit cards with a $1,000 balance on each.

The age of your credit card accounts is another important factor in maintaining your credit score. Because of this, it’s better to continue to use older credit cards at least once every six months rather than closing them – especially if you’re looking to repair or establish your credit history. Creditors value longer relationships and your credit score will show this.