Credit cards can be a useful tool to help you build your credit and finance your needs. Having multiple credit cards can help you or hurt you, though, depending on how you use them.
Some personal finance experts will tell people that using credit cards only brings financial troubles. But they can actually be helpful if you use them responsibly.
Having one or two backup cards can be a good idea in case of an emergency. In addition, they allow you to keep your credit use away from your credit limit. Remember, spending close to your overall credit limit can result in some damage to your credit score.
However, if you have a history of racking up credit card debt, owing money on multiple cards can make it difficult to keep track of your debt, leading to damages to your credit score. Here are some things to consider when trying to determine, “how many credit cards should I have?”.
Having multiple cards can help your credit score
If you are a responsible spender and are capable of keeping your credit card due dates in check, having multiple cards can actually help you! 30% of your FICO credit score is calculated based on how much credit you have available to you that you are using.
If you have $1,000 available to you on one credit card, but each month you are putting around $900 worth of expenses on that card, even if you pay it off in full each month on time, this still reflects negatively on your credit score. Overall, you should aim to use no more than 30% of a line of credit at any one time.
This means that you should ideally put no more than $300 on that card, and the remaining $600 spread across other cards. If you can open two new credit cards and spread the debt evenly, and (emphasis on the and) pay them back on time, this can help your credit score overall.
Opening cards can hurt your credit
While increasing your credit limit can help your credit score, opening too many cards at one time can hurt you. Each new line of credit is called “new credit” by FICO and can damage your score in a few ways.
First, when you apply for a credit card, an inquiry is put on your account. This can lower your score by a few points. Second, 15% of your credit score is reflected by the length of your credit history. Having multiple brand-new accounts lowers the average age of your credit accounts, reflecting poorly on your score. As a general rule, try not to apply for too many new credit cards in one period of time.
Watch out for annual fees
Some credit cards have annual fees or service charges built into their contracts. If opening multiple credit cards means you will be slammed with hundreds of dollars of annual fees between the cards, this is likely not a wise financial decision. Be sure to consider this when applying for new cards. When you’re looking at applying for new credit cards, review all the terms to determine if annual fees apply.
Losing track of your bills will hurt you
As any responsible credit card holder knows, the most important thing you can do is pay your credit card off in full every time the bill is due. If you can’t pay the card off in full each month, the next best thing is to make the minimum payment (at the very least).
Each time you do not pay off a credit card, you are subject to accumulating interest. If you miss minimum payments, the situation can turn ugly quickly. Not only are you charged late fees, but the interest rates on your debt can also increase, not to mention the damage to your credit score.
Credit card debt can start small, then build quickly. If you notice you’re not paying your card off in full every month, you should re-evaluate your credit usage and take steps to pay your cards off.
Having an extra card or two is good for emergencies
No matter how careful we are as consumers, it is likely that at some point, at least one of our credit cards will become compromised. This can happen if your wallet is stolen or if your credit card information is hacked.
If you travel often, sometimes freezes can be placed on your account to protect you, making it difficult to use your card while abroad. In a case like this, it can take several days or weeks to replace your credit card, depending on the lender. Because of these situations, it might be a good idea to have a backup card or two.
Some financial institutions recommend having three cards (even if one is a debit card) and keeping one at home at all times in case you happen to lose your belongings.
Multiple cards bring multiple benefits
One thing about having multiple credit cards is that different cards offer unique rewards.
For example, some may be geared toward high rewards for travel expenses, while others may have cash back benefits that apply to all purchases.
Having multiple cards means that you can maximize your access to these benefits if you do it wisely. Spreading your purchases across multiple cards with different benefits means that you can take advantage of varied rewards without damaging your credit score.
As an example, the Platinum Visa Credit Card from Jeanne D’Arc offers 2x cash back for select periods on gas and groceries. Click the button below to learn more about this credit card or to get started with an online application now!
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