1…2…3… How Many Credit Cards To Carry?
When it comes to owning credit cards, there is no special number to consider. You have advantages as well as drawbacks in having multiple credit cards. A good credit score, lower insurance rates and card benefits are positive features, while too many credit cards can affect your credit history. Here are some considerations, which will help you decide on the right number of credit cards to carry.
Credit score does not matter much
Credit score calculated by credit bureaus is not influenced much by the credit card numbers. The number of cards mainly affects the credit type you use. The most important factor in having many credit cards is to ensure you keep paying the bills in a timely manner and utilize the credit in a smart manner.
The number of credit cards is often related to the credit score you have. People with good credit scores can own more number of credit cards. If you are frequent traveller, several cards with high travel rewards feature would be a profitable one.
But in general, the score does not decrease because you own multiple cards. However opening several credit cards and closing them immediately is not a favorable idea.
Higher credit limit
The debt you own, on the credit limit you are eligible for, is an important factor that influences the number of cards you should have. With every credit card you add, your credit limit increases and the debt to credit ratio is reduced, provided you do not add additional debt.
For instance, if you have Rs. 30,000 on a credit card with a 60,000 limit (which is 50 percent utilization), you can reduce the overall utilization to 10 percent, when you open a fresh credit card with Rs. 2, 40,000 limit. This would create a better impact on the credit score and with your lender.
The debt you owe for each credit card helps in spreading the debt and protecting your score. So, in a debt situation having a minimum of three cards would be very helpful.
It is always possible to ask for an increase in the credit limit on the same card, instead of buying a new one. This will have a similar effect on credit score improvement. And it also eliminates any spending you do towards opening a fresh account. Further, you will not have the hassle of managing multiple cards. If you have a good credit score and longer credit history span, opening new accounts will not impact the score negatively.
Avail more benefits
Since all credit cards come with a great many offers and rewards, having several cards will help you make use of the different rewards offered. You can make use of a card with more cash back rewards for groceries and gas and a card with travel points for when you travel or dine out. This way you can maximize the benefits you get from the cards.
Further, MasterCard, Visa, American Express and Discover have reward programs of their own for cardholders. Auto renal insurance, price protection and other extra perks are also available with the cards, so you can select the appropriate cards that give you the best benefits.
Beware of the cons
While the above mentioned reasons may make you prefer multiple credit cards, you should also know about the drawbacks on having additional cards. Here are some considerations to note:
• Avoid opening several cards at the same time because they have attractive benefits. New cards can reduce average credit history age. This will affect your chances of taking a big loan in a few months’ time.
• It is a big hassle maintaining more than a couple of cards. To avoid closing of the card due to inactive accounts, you should use the cards regularly. Closing accounts can affect your score reducing the total credit limit.
• If your card has annual fee, you should downgrade it to a no fee version to avoid paying fees unnecessarily.
• More cards may induce you to overspend, especially if you are aiming at getting rewards and meet the minimum requirements for spending.
Multiple cards have the disadvantage of luring you into spending more and not always on time. This can hurt your financial standing, and attract late fees and higher interest rates as penalty. But, when you behave responsibly, ensuring your spending is under control, and you keep paying the bills properly, and maintain a low balance, additional cards will not affect you. The key here lies not in the number of cards, but in managing them smartly.