It can be difficult to know when you need a credit card and when you don’t. After all, the benefits of having a credit card extend far beyond being able to shop for clothes, furniture and electronics without paying for them upfront.
As well as giving you access to exclusive offers, credit cards can help develop your credit score if you use them responsibly and pay your credit card balance in full each month. Unfortunately, the number of credit cards available to consumers has increased exponentially in recent years, which has led to an up tick in the number of people who have too many cards.
This has resulted in some analysts warning that it is now a “credit card plague”. In this article, we will discuss the pros and cons of having too many credit cards and why too many cards can negatively impact your credit score.
What is Too Many Credit Cards?
Basically, there is no set number of credit cards that would be considered “too many”. Generally speaking, a good rule of thumb is to have three or four credit cards at the most. You need to make sure that you are not maxing out your available credit and responsible for paying off balances each month.
How Many Credit Cards Should You Have?
So, how many credit cards should you have? The answer is more complicated than it sounds. The value of the card depends on what the card offers and what you plan to use the card for. For example, if you just want to build your credit, any credit card will do, but some credit cards offer different benefits, as well as giving you the credit account to use.
If you have multiple cards and one falls into delinquency or gets maxed out and then starts generating interest charges, it can affect your credit score negatively because it will show up as more debt to lenders. That can be damaging to your credit rating unless you pay off that account in full.
Ideally, if you have multiple cards, each one should be used for specific purposes, so they don’t conflict with each other and cause confusion in your financial life. A balance transfer may be needed if one becomes maxed out while others remain unused.
This can improve your chances of getting approved by another creditor since they know that all of your debts are being taken care of financially, which will help boost their confidence in granting more credit to you down the line when an emergency comes up or when big purchases need to be made.
The Pros of Having Too Many Cards
When it comes to too many credit cards, there are some benefits to having many credit cards. Some experts argue that if you’re careful and have a solid credit history, having a lot of cards can actually improve your credit score.
This is because your ratio of total debt to total available credit is lower than someone who has fewer cards and higher balances on each card. For example, if you have three credit cards with a balance of $2,000 each, then your total debt is $6,500 and your total available credit is $25,000. This gives you a ratio of 30%.
If you were to get two more cards with balances of $1,000 each for a total of four cards, that would leave you with around $4,500 in debt and about $30,000 in available credit for a ratio of 15%. In this case, the person with four cards would have a better rating than the person with three.
Furthermore, as long as you avoid maxing out any one card or all of them at once (and pay off any money owed by the due date), owning multiple credit cards can help build your credit score.
The Cons of Having Too Many Cards
There are a number of potential disadvantages of having too many credit cards. They include:
- Higher risk for fraud
- Difficulty managing multiple cards
- Increased chance of inattentiveness
- Higher debt limit
- Late payments on your credit card balance
Credit cards are great for paying for things you don’t have cash for. They give you a line of credit to spend, and let you repay it at your leisure. And the more credit cards you have, the more the credit companies want to give you.
But that can lead to a lot of temptation to overspend, and can hurt your credit rating. If you’re serious about building your credit score, it’s best to keep it at just one or two cards.
And if you’ve got a good credit score, it might even be worth cancelling the cards you don’t use to get them out of your life for good. But if you’re not sure what to do, you should talk to a credit counsellor first. You might be able to get your score back up pretty quickly!