If you want to know how many credit cards to have, you must consider the consequences of credit card use. Overall, the way you use your credit cards can influence their usefulness in the long run. For instance, running up large credit card balances can make it difficult to keep up with your credit card payments.
You may also have difficulty obtaining loans for purposes such as buying a vehicle or home due to the negative impact that high credit card balances can have on your credit score.
When considering how many credit cards is enough, there is no universal number. Each individual has to decide how many credit cards are need based on his or her intentions and/or circumstances. It is also important to have an in-depth understanding of how opening, maintaining and closing credit card accounts can impact your credit score. For example, you may need a corporate credit card if you make a lot of business-related purchases. Here are some factors to take into consideration when deciding how many credit cards to have.
Recent and Personal Credit Card Ownership Trends
One way to decide how many credit cards you need is to consider recent trends in credit card ownership. Prior to the economic recession in 2008, having 12 or more credit cards was very common. However, recent economic downturns led to less credit card ownership. According to a 2014 poll, Americans own an average of 3.7 credit cards. Furthermore, data released by the Fair Isaac Co (FICO) in 2018 indicates that consumers with credit scores of at least 800 average three open credit cards.
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It may sound like three is the ideal number of credit cards. However, that same FICO report indicates that credit card owners with excellent scores also had some closed credit card accounts. Additionally, recent trends may not reflect the reality in your own lifestyle. As an example, if you have a low income, you may wish to avoid accumulating credit card debt altogether. Conversely, if your income is high, you may be more comfortable opening multiple lines of credit. Therefore, national trends may not mirror your specific needs.
The Convenience of Having Several Credit Cards to Use
One reason you may want to open more lines of credit is for convenience, as owning multiple credit cards may help you monitor your spending. If you have a business, you may wish to track your company-related expenses, which is easy to do with a credit card. Alternatively, you may have different credit cards for specific personal purposes. For example, you may prefer to have a designated credit card to use for travel and a separate card to use for home-related purchases.
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Another convenient reason to have several credit cards is to have a line of credit to fall back on in case of an emergency. For instance, a car accident or a medical emergency may place a financial strain on you. If you only have one or two cards, you may find yourself unable to cope financially in such a situation. However, you must be careful when using an emergency credit card too much, because you can easily fall into incurring a high amount of debt. Furthermore, make sure to familiarize yourself with the policy of your credit card company, being certain that the card is not canceled due to inactivity.
Keeping at least one credit card with a high limit empty for an emergency is also ideal in case one of your credit cards becomes compromised. Identity theft or fraud cases are quite common, which may prompt a financial institution to issue you a new card. Because the process of receiving a new card may take several days or even weeks, it is smart to have spare credit cards that can be used to pay your bills and living expenses meanwhile.
Know Exactly How Credit Cards Impact Your Credit Score
In order to decide how many credit cards you personally need, you must learn about how these lines of credit impact your credit score. As a general rule, opening new cards and using them have an impact on your credit rating. Moreover, canceling existing credit cards also play a role in your score. Therefore, be mindful of the following factors related to credit cards and your credit score:
- Getting new credit cards – Whenever you apply for a new credit card, the financial institution issuing the card will check your credit report. In general, this check causes a temporary and slight reduction in your credit score. Thus, limiting your credit card applications is important.
- Credit history length – Your credit history length also impacts your credit score. If your credit history is short, obtaining several new cards makes the average per card significantly shorter. As a consequence, your credit score will be impacted negatively.
- Credit card debt ratio – The debt ratio you maintain across all of your credit cards is also significant. Overall, it is important for the debt to credit line ratio to be 30 percent or lower. Otherwise, your credit score will suffer accordingly.
Based on the abovementioned factors, you must find a balance that allows you to maintain a comfortable amount of credit. Closing too many credit cards may increase your debt ratio too much, whereas opening new accounts may cause a similar result. Thus, you must always consider the other potential benefits and detriments of credit cards before making a final choice about how many to own.
General Credit Card Risks Versus Rewards
Among the biggest risks related to credit card is the feeling of temptation typically yielded by high credit limits. If you have multiple credit cards and do not intend on using them much, you may still be exposed to a constant feeling of temptation to spend beyond your means. Conversely, having fewer credit cards may make budgeting and dealing with financial challenges easier in some ways, as you do not have to struggle to pay several bills monthly.
If you choose to maintain multiple credit cards, it is important to find cards that offer rewards, making them worthwhile to be used regularly. For instance, many credit cards offer travel or lodging rewards. Others offer dining perks, retail points or even cash back on all general purchases. However, while it may be tempting to apply for many of these cards, more is not always better. Applying for multiple cards offering rewards can cause several credit inquiries in your record, which will negatively impact your credit score. To figure out which cards you want, carefully examine your spending history and habits. Once you identify your favorite perks, obtain a small number of credit cards that offer them.
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