Do you think having more than one credit card is a good idea? The answer is no if you’ve ever spent your way into a massive pile of credit card debt. If you have multiple credit cards, it can be difficult to make your debt repayments. However, the number of credit cards you should have is not simple, and there can be advantages to having more than one credit card. Most experts agree that having multiple credit cards can either help or hinder your credit score, depending on how well you manage them. Despite this, Americans continue to take advantage of the credit cards offered. According to a recent Experian report, the average American now holds around four credit cards. The figure has decreased slightly from previous years, which follows the pattern of U.S. consumers shedding credit card debt as the coronavirus pandemic spreads financial uncertainty.
Is It Good to Have Multiple Credit Cards?
You probably have major concerns about how having multiple credit cards will affect your credit score. The credit utilization ratio is a common consideration, but having more than one credit card can help your credit score by making it easier to keep your credit utilization ratio low. If you charge an average of $1,800 a month to your credit card with a $2,000 credit limit, then your credit utilization ratio—the amount of your available credit that you use—is 90%. A high credit utilization ratio will negatively impact your credit score. If you have just one card and pay it off in full and on time every month, then it may not seem fair that you should be penalized for using most of your credit limit. That is how the credit scoring system works.
Most credit experts recommend avoiding using more than 30% of your available credit per card at any given time to improve your credit score. If you spread your $1,800 in purchases across several cards, keeping your credit utilization ratio low will be much easier. The “amounts owed” component of your score, which makes up 30% of your credit score, is just one of the factors that the FICO credit scoring model takes into account. Your payment history is weighted more heavily (at 35%) than any other factor in determining your credit score.
How Many Credit Cards Should You Have?
There is no definite answer to that question because everyone’s situation is different. Credit card convenience, security, and other benefits make a strong argument for having at least one. There are a few justifications for why someone might have more than one credit card. It could be that they need the extra credit lines to accommodate their monthly discretionary budget. Or they might be looking to leverage their everyday spending to earn various rewards like cash back, points, or airline miles.
How Many Are Credit Cards Too Many?
If you can’t afford to pay your bills, don’t need them, or don’t plan to use them for some purpose, even having two credit cards can be one too many. Although getting a new credit card can sometimes improve your credit score by lowering your total credit line utilization ratio, getting a lot of cards is not advised in a short period. Many card issuers have rules to combat the phenomenon of customers signing up for lots of credit cards to earn bonuses and then canceling after meeting the spending requirements. An example is Chase’s 5/24 policy, which doesn’t allow approval if more than five credit cards have been applied for in the past 24 months, regardless of the issuer. Having many cards can make you look risky to lenders and lower your credit score. The mere fact that you have a lot of open and available credit lines, even if you have them all paid off, can make you look like a potential liability to the next lender. No absolute number of credit cards is considered too many, but it is best to only apply for and carry the cards you need. It can justify use based on your credit score, ability to pay balances, and rewards aspirations. Having multiple cards can mean multiple fees and interest charges that accumulate in several places. Cards with annual membership fees are often premium cards, while other cards may have introductory teaser rates that shoot up after several months. Even with relatively small balances, keeping track of this can become complicated.
Different Cards, Different Benefits
You can earn the maximum available rewards on every purchase you make with a credit card by having an array of credit cards. You might have a Discover it Cash Back card to take advantage of its rotating 5% cash-back categories. This means that you can earn 5% back in certain months on purchases such as groceries, hotels, restaurants, and gas (subject to a cap of $1,500 in combined spending per quarter). Use the card that gives you 2% back on gas during the nine months of the year when Discover isn’t paying 5% cash back on gas. A card offering a flat 1% back on all purchases might additionally be something you have. This card should be used for purchases if a higher reward is unavailable. You might be able to earn 5% on all clothing purchases in October, November, and December with your Discover card; for the rest of the year, when no special bonus is available, you would use the 1% cash-back card for example. Other considerations are store-branded credit cards that can only be used for purchases in that particular store or on their website. If you’re doing a lot of shopping at one place – for example, back-to-school shopping, holiday shopping, or a major purchase like appliances for your home – opening a new store credit card that offers a significant discount on those purchases can be a huge benefit. Paying off a store card immediately can get you a discount, but you may also want to close the card if you don’t need it anymore. You don’t want too many accounts because it’s easy to forget a bill payment or lose a card. Any savings you might have earned can quickly be ruined by the problems resulting from such oversight.
Compromised Cards
If a credit card company detects potentially fraudulent activity or suspects that your account number might have been compromised, they may freeze or cancel your card. The best-case scenario is that you will not be able to use your card until you have talked to the credit card company to confirm that you are on vacation in Bermuda and your card has not been stolen. You cannot make that phone call from the cash register, as you must provide sensitive personal information to confirm your identity. You’ll need another way to pay if you want to complete your purchase. If the company can’t fix the problem, they will give you a new account number, and you will have to wait a few days to get your new card in the mail. You could lose a card or have one stolen. You might want at least three cards: two that you carry with you and one that you store in a safe place at home. You should always have at least one card that you can use. It’s a good idea to have at least two or three credit cards because of possibilities like these. Make sure you’re always prepared with a backup payment method, whether cash or debit card, if you only want one credit card. Are these cards worth the convenience and security they offer? Be careful about prepaid debit cards and check the fees, if any.
Should You Carry a Credit Card for Emergencies?
You would be better off if you had enough money in a liquid account, such as a savings account, to use in an emergency instead of a credit card. Any emergency savings can often be drained by other situations, such as an unexpected medical bill or a job loss. If you are away from home while on vacation and don’t have the ready cash to cover a car repair or some other unexpected expense, a credit card can come to the rescue. At least two or three credit cards can be useful in times of crisis. Ideally, these cards would have no annual fee, a relatively high credit limit, and a low-interest rate. If you turn to credit cards when you’ve lost income, exercise extreme caution so that you don’t take on unmanageable amounts of credit card debt.
How Often Should You Apply for a Credit Card?
In theory, you can apply for new credit cards as often as you like. You can apply for many cards in a very short time since the average online application only takes a few minutes. You should not apply for multiple credit cards all at once. It is usually better for your credit score to wait between credit card applications, which may even improve your chances of getting accepted.
Does Having More Credit Cards Help Your Credit Score?
While having multiple credit cards can help your credit score, it can also hurt it. The outcome depends on how well you manage the cards you have. The same rules apply to credit cards as with anything else: Keep your balances low and always pay bills on time. You should avoid applying for several new credit cards at once, even though the number of cards you carry likely won’t affect your score. More cards and a higher credit limit can help improve your credit score over time if managed properly.
Can You Have Two of the Same Credit Card?
As long as you meet the qualification criteria, many credit card issuers will approve you for another one of their credit cards. If you have always managed your current credit card well, it may be easier for you to get approved for the new credit card. You will not get the same terms for your credit card. Your credit card application will be approved based on your current income and credit standing, which may have changed since you applied for the first card.
The Bottom Line
If you manage them responsibly, there are many benefits to having multiple credit cards. To ensure that having several credit card accounts works for you instead of against you, be aware of the benefits each card offers, your credit limit on each account, and your payment due dates especially. Use each credit card wisely to keep balances low and, if possible, pay off the full balance before the due date.
