When used correctly, credit cards can be a great way to build a credit history and take advantage of perks and rewards. But is it wise to have multiple credit cards, or is it better to just stick with one? This article will cover:
- How many credit cards should I have?
- Pros of having multiple cards
- Cons of having multiple cards
- Tips for managing multiple cards
- Are multiple credit cards right for me?
How many credit cards should I have?
Having at least one credit card for the rewards and convenience can be a good idea, assuming you don't have issues managing money and will be able to make payments on time. You may want more than one if you plan to use different types of rewards or if you need additional lines of credit.
Can you have too many credit cards?
There isn't a magic number of how many credit cards you should have. Two cards could be considered too many for someone who doesn't want to manage two separate payments.
Keep in mind that signing up for numerous cards within a short time period is not generally a good idea. Credit card companies can look at this behavior as risky since it may point to not being able to adequately manage your money, and may cancel your account if they suspect any foul play. Applying for multiple cards in a short time period may also hurt your credit score.
Does having multiple credit cards hurt your credit?
A credit score is very dependent on individual circumstances. But the more cards you have, the harder it can be to keep track of them, pay bills on time and avoid overspending.
Advantages of having multiple credit cards
The pros of having multiple cards include:
- Earn maximum rewards: Multiple credit card holders can earn maximum rewards on purchases. If you travel often, having one card that offers miles and another that earns hotel rewards can give you access to additional, travel-specific perks like room upgrades and anniversary nights.
- Low credit utilization ratio: Having more than one credit card can boost your credit score by helping to lower your credit utilization ratio. Your credit utilization ratio is the amount of credit you're using compared to the amount of credit available. Most lenders prefer to see it at 30 percent or lower.
- Backup cards: It can be very helpful to have more than one card if one of your cards is lost or stolen since it could take more than a day or two to receive a replacement card.
- Save with balance transfers: You could save money on interest by moving a credit card balance on a high-interest card to one with a lower rate.
Disadvantages of having multiple credit cards
The cons of having multiple cards include:
- Annual fees: Be aware of having multiple cards that charge annual fees. Paying these fees may mean that the cons outweigh the pros that may come with the card, like rewards or points.
- Harder to stay organized: The more cards you have, the easier it can be to forget to pay a bill on time or keep track of credit limits. Delinquent payment behavior will have a negative impact on your credit score.
- Appear risky to issuers: Applying to multiple credit cards within a six month period can make you appear risky to credit card issuers.
- Easy to overspend: The more lines of credit you have open, the more debt you could accrue.
- Many hard credit checks: Every time you apply for a new card, your credit score will undergo a hard check (or hard inquiry) by the issuer. Numerous hard checks can impact your credit score.
How to manage multiple credit cards
Here are six strategies for handling multiple credit cards:
- Maintain a list of monthly card and annual fee due dates. Enrolling in automatic payments can help you ensure that you don't miss your monthly payment. It's also important to keep a list of when each monthly payment is due since a late payment can mean you'll have to pay interest. Additionally, keeping a list of when the annual fee is due will help you keep track of when the fee will hit.
- You may not want to open new accounts to boost your credit score. How you use the cards matters more than how many you have.
- Always keep an eye on your balances. Don't use additional credit to make purchases you can't afford.
- Factor in timing when applying for a new card. If you already signed up for a new card within a short time span, it can be wise to wait before applying for another one. Too many applications in a short amount of time can damage your credit score.
- Don't necessarily close old cards when applying for a new one. In many cases, lenders like to see a long credit history, and the longer you keep old accounts open, the better it is for your credit score and history.
- Don't let any of your cards lie dormant. Using all of your cards once in a while will prevent them from becoming inactive. If a card is closed due to inactivity, your credit utilization ratio can go up, which in turn may damage your credit score.
Bottom line: Is it good to have multiple credit cards?
Being a multiple credit card holder is good as long as you keep track of payments due, avoid overspending and maintain a low credit utilization ratio.
However, if you know you have a tendency to run up large balances or if you have difficulty staying organized with payments, it's probably best to avoid having multiple credit cards.