The offer comes in the mail, 0 percent interest on this new credit card. You might walk by the kiosk at the airport offering 50,000 bonus miles. Or your cashier asks if you want to save 10 percent by opening a new credit card. It seems like we’re bombarded with great offers daily. But then you wonder, how many credit cards should I have? We’ll help you think it through so the next time an offer comes your way, you’ll be more confident about ripping it up, or filling out the app.
FIRST THINGS FIRST
Having multiple credit cards can be a good thing so long as you’re using your cards responsibly. That means you’re paying off your cards each month. Having multiple cards could boost your score because it can help you keep your credit utilization low. In order to get an optimal credit score, you should only use between 20 percent and 30 percent of your total credit and your credit available on each card.
Here are a few scenarios to help you decide whether to snag the next offer thrown your way.
SCENARIO 1: A store credit card with a discount
You’re at the checkout when suddenly you’re offered a store credit card with a discount. Should you get it? Before you decide, ask about the APR (how much interest you’ll pay on any balance you carry) and the annual fee. If there is no annual fee and the APR is reasonable, it might make sense to get the card, especially if you’re at one of those stores where you always spend more than $200 (you know which one). That discount will add up. If you rarely go to that store — skip it! Also, if you’re making a big purchase that will max out the card, it might hurt your credit rating even if you pay it off right away since you’ll go over the 20 percent to 30 percent credit utilization.
SCENARIO 2: A rewards card
You get a great rewards card offer that comes with thousands of bonus sign-up points. Should you get it? Before you decide, look at how much you have to spend to get the sign-up bonus. Those sign-up bonuses don’t come automatically — you have to spend a specific amount of money during the first few months to qualify. Weigh the cost of any annual fee against the sign-up rewards and everyday rewards. If you don’t use the card enough, you might not be able to earn the annual fee back (or get that initial bonus). Also, if you have other rewards cards, you might be getting better rewards from them.
It could make sense to have multiple kinds of cards so that you can use different cards to get the most rewards depending on what you’re buying.
SCENARIO 3: 0 percent introductory rate card
You have some credit card debt and so you’re excited when you get an offer for a card with a 0 percent introductory rate. This can help you pay off your debt faster, right? Maybe. Before you sign up check how long the introductory rate will last, and the balance transfer fee. Most cards charge a balance transfer fee of three to five percent just to transfer your balance. Look for cards with no balance transfer fees or very low balance transfer fees. Also, look for a card where the introductory rate lasts for at least 12 to 18 months. If the introductory period is short, you might soon be paying more than you currently are on your card.
HOW MANY CREDIT CARDS SHOULD I HAVE?
It’s personal preference. If you feel you have too many cards, just remember that cancelling old cards that have a long history of on time payments could hurt your credit score since the length of your credit is used to calculate your credit score. But if you have a bunch of older cards it shouldn’t affect your credit too much if you cancel a card that’s a year or two old. In fact, if you have cards you got because they had low introductory rates or a great sign-up bonus, it might make sense to cancel them. If you feel you don’t have enough cards, applying for a bunch at the same time will also hurt your score since lenders may think that you’re in financial distress.