Owning a credit card is a part of life for more adults all over the world. They allow you the freedom to make purchases in an instant, and allow you the opportunity to pay off your debt as you go. Credit cards can be a hassle, though, as well. First off, they can make it harder to avoid frivolous spending and can lead to living past your means. That can, easily turn to loads of credit card debt if you are not careful.
While you don’t want your wallet to be bursting with plastic, many people do find that it is helpful to have several lines of credit on several different credit cards open. But it’s up to you to decide how many cards you want.
Consider these questions to figure out how many credit cards you should have:
Do you want to improve you credit score?
The majority of credit card holders own between one and five cards, with three cards being the national average. But, you may want more cards than that average depending on your credit utilization rate – that is the ratio of how much credit you have and how much you use.
For example, if you have $10,000 in total available credit across five cards and use $1,000, this is better than if you have $1,000 of total available credit on one card and use $500. That’s because in order to maintain a strong credit score, you are going to want to stay below 30 percent of your total credit available. In the first case, you are using just 10 percent of your credit. In the second, you are using 50 percent. That higher ratio indicates that you are potentially living beyond your means even if you are charging less.
Credit utilization is one of the most important factors when it comes to your FICO Score, the number that depicts your overall credit worthiness. In general, the higher your credit score, the more attractive you are as a borrower to get loans, mortgages, car leases, and more.
If your credit ratio is higher – like it is in the $500 used of $1,000 available example – applying for additional credit cards could be a good idea. That’s because it will lower your utilization rate. Of course, it will be up to you to still live within your means and not overcharge. You should also be sure not to open a lot of credit cards at the same time, because that will potentially raise a red flag to lenders that you are looking to take out more credit than you can feasibly pay back.
Do you already have trouble tracking spending and bills?
If you already often find yourself paying bills a couple days late, or opening your checking account to find some unhappy surprised, you may want to keep the number of credit cards you have at your disposal to a minimum. If you already have multiple cards open and are looking to reduce the temptation of adding to your credit card debt, don’t just close your accounts. That will have negative impacts on your credit ratio.
Instead, simply stop using some of your cards. Especially focus on the cards you own with high interest rates, and consider transferring your balances to one or two cards with a low or zero percent interest rate. This will save you money in terms of interest you are accruing and simplify your parents so you can keep better track of it all.
Are you planning on making a large purchase?
If you are considering buying a new car or a house in the next six months to a year, you should consider avoiding applying for new cards, as this could cause your credit score to dip somewhat. When you open new credit card accounts, it lowers your average account history. While it doesn’t cause a big dip to your score – as it makes up only about 10 percent of your total score – you want to do everything you can to get the best rate on a big loan, mortgage, or lease.
Do you want to earn more rewards?
One major reason why people consider opening new cards is because some cards are made specifically for certain kinds of purchases. There are credit cards that reward you for trips to the gas station, purchases at the grocery store, and purchases on online marketplaces like Amazon. There are other credit cards that encourage travel and hotel stays – both domestic and international.
If you think that you could take out a credit card that would reward the lifestyle you are already living, it could certainly be wise to take out another card.
These are the basic questions to ask regarding your own credit card decisions. They can be a great help in your day-to-day life, and can also be helpful in terms of building a strong history of credit.