Written by: Thanh Le
There is no magical number to the number of credit cards one should have, but it should be about having the right cards to maximize the benefits that fit your lifestyle as long as you can afford to pay the bills.
Under the assumption you're able to pay off your credit cards, there is a false misconception that having multiple credit cards can hurt your credit profile. It’s okay and often suggested to have multiple credit cards, as long as you're sticking to several parameters - keeping your debt balance (usage rate) below 30% of your debt limit, pay off your credit cards in full each month, set up auto bill pay since each credit card will have different due dates (life is busy), and keep track of all your credit cards.
With the ease of auto bill pay, one-click pay, digital payments, it’s not uncommon that most of our monthly expenses are applied to the credit cards. In doing so, we may not notice that the usage rate will creep above 30%. More about usage rate below.
Does Applying for a Credit Card Hurt Credit?
A concern of many people is whether applying for a credit card will hurt their credit score. Something to keep in mind is that applying for a credit card will trigger a hard inquiry resulting in a score drop at first. If you have good credit history, the impact will be short, but inquiries may stay on your report for up to two years. Not to worry as this is pretty standard and the new FICO models exclude the hard inquiry after 12 months.
Credit companies do limit the amount of applications within a 12 month or 24 month cycle regardless of the issuing company. Before applying for multiple credit cards in a short period of time, check the disclosure (fine print) to make sure you’re in the clear. Also check your credit score as it can be helpful to wait for a rebound in your credit score before applying for the next credit card.
Is it Good to Have Multiple Credit Cards?
If you're a traveler focus on credit cards with the best mileage program, an airline that you fly frequently, or one that provides access to perks like lounge access (very helpful for families and frequent flyers).
If you prefer cash back, review your spending habits and identify a credit card that has the best benefit for the locations you shop at. With many promotional perks where the annual costs is zero, it’s not uncommon to have a card dedicated to various shopping locations. The example if you primarily shop at Costco for groceries and the occasional $6.99 rotisserie chicken, it could make a lot of sense to maintain a Costco card for the higher cash back and have another cash back cards for restaurants and other shopping locations that may provide a better return.
Having multiple credit cards with different types of rewards can enable you to maximize those rewards. It also creates multiple lines of credit history, which can strengthen your credit score over time (more on that next).
Rack up the points, but avoid getting carried away. You still want to maintain a stealth wealth lifestyle.
How Many Credit Cards Should You Have?
There are several metrics and parameters that you want to be aware of as part of maintaining good credit health. The first is credit age, so you may want to avoid rushing to close old credit cards.
By closing the old credit card, you will lose time it’s been open therefore shortening your credit history which would negatively impact your score. Think of your credit score like your reputation. It takes a long time to build a solid reputation. Once you’ve built it, it’s wise to maintain it.
If there are no fees, feel free to keep those unused credit cards open and store them away safely. It may good practice to keep a spreadsheet with all your credit cards…limit, balance, when opened, and where stored (if you’re not using it).
Credit card usage rate is a high impact category. It’s recommended that you keep the usage rate below 30% to avoid negative impacts to your credit score.
For example, if you have a credit card limit of $5,000 and you spend $3,000 on it monthly, your usage rate is 60%. Another reason to have multiple credit cards so you can spread your spending on different cards and keep the overall usage rate low. If you have three cards each with a $5,000 limit and spend a total of $3,000/month on credit cards, your usage rate is now only 20% ($3k out of $15k limit).
As a reminder, it’s okay to request and accept the maximum limit when you apply. Another helpful tip is you’ll randomly get requests from the credit card company to increase your limit, it’s beneficial to accept those increases. You can even request annual limit increases proactively!
Another high impact category is payment history. Make sure you’re paying off your credit cards monthly. At a bare minimum, it is imperative that you pay at least the minimum balance due on time. Life can get busy so take the time to set up those auto-bill pays. You don’t want any red marks on your credit history, as they could stay on there for years.
In summary, there are plenty of benefits to having multiple credit cards and I do believe that you should be taking advantage of these perks. However, it’s very important that you are responsible and manage them correctly.
- Review your credit score on annual basis. Your credit card online portal will often provide free FICO scores. You can also request a free annual credit report at annualcreditreport.com.
- bankrate.com is a wonderful resource for all credit card related information.
- The Points Guy – a blog that I have found helpful in identifying travel rated cards.