How many credit cards should you have?

hand full of credit cards
How Many credit cards should you have?

Topics covered:

  • Do too many credit cards affect your credit score?

  • What affects your credit score?

  • Should I close my credit card accounts if I have too many?

  • What are the top 5 credit cards for credit rewards in 2020?

Credit cards often come with some of the most eye-catching and enticing credit rewards. Offers for your favorite restaurants, exclusive travel discounts, not to mention $500 cashback for hitting $4000 in purchases in the first three months of acquiring the card. What is not to love?

However, what may appear to be an unmissable offer at the time may quickly leave you wondering, can you have too many credit cards, just how many credit cards should you have, and what credit rewards are the best?

To answer the question of how many credit cards you should have depends on the associated risk to your credit score, it is different for everyone. Different lenders tolerate different levels of risk, and different credit scoring formulas have different criteria. For some people, opening a new line of credit can impact positively on their credit score, for others, the impact may be negative. The impact on payment history, credit utilization, a mix of credit accounts, and new credit inquiries are all factors that need to be considered before signing up for a new credit card.

Do too many credit cards hurt your credit score?

If you carefully monitor your credit cards, having multiple accounts isn’t necessarily a bad thing. Having more accounts means you need to be increasingly responsible and ensure all payments are made on time, as well as being increasingly vigilant to scan for any suspected fraud.

The effect is usually minimal when it comes to having multiple credit card accounts. The most important thing is to look at the bigger picture, (credit utilization, payment history, length of credit, and new credit) and decide will these affect your credit score long term when deciding to take out a new account.

What will affect my credit score?

Payment history

  • Make sure you always pay your cards on time

  • Call your credit card company and reset the billing cycles so they are identical for your cards – it is easier to remember one day than several days.

Amounts owed (aka credit utilization rate)

  • Experts recommend keeping a utilization rate below 30% per card. To find your credit card utilization rate, just add up your balances across all cards and divide by your total available credit limit.

  • Remember just because you have lots of credit available to you, it doesn’t mean you should use it.

Below is an example of the potential positive effect having more than one credit card can have on your utilization rate: Mike has four credit cards and Evan has one card.

  • Mike’s total credit limit is $10,000: $4,000, $3,000, $2,000 and $1,000 over her 4 cards

  • Evan’s total credit limit is $2,000: on one card

If Mike and Evan both spend $1,000 each a month, their utilization rates would be:

  • Mike: 10% ($1,000 / $10,000 = 0.1 X 100)

  • Evan: 50% ($1,000 / $2,000 = 0.5 X 100)

This example shows that it’s easier for Mike to maintain a lower utilization rate than Evan when spending the same amount of money across four credit cards. But Mike should be careful not to overspend with his higher credit limit.

The average length of credit history

  • The average length of your credit history decreases when you open a new credit card. The effect only decreases your credit score by a few points and can usually be made up back within a few months. However, if you open up multiple cards in a short period of time the points do add up.

  • For example, if you opened your first card in 2004 (15 years ago) and decide to open another card in 2020, the average length of your credit history would reduce from 15 years to 7.5 years. That is a large difference and may cause your credit score to worsen.

Number of credit inquiries

  • Every time you apply for a credit card — whether you are successful or unsuccessful — the credit card issuer pulls your credit report. These inquiries negatively affect your credit score, but your score will bounce back over time.

  • The more credit cards you apply for, the more inquiries appear on your credit report. Many card issuers issue pre-qualification forms that allow you to check your qualification odds without damaging your credit. But be remember if you decide to submit a formal application, your credit will be researched.

O’rise Finance Credit Repair can help to provide expert help to improve your credit score. Contact us today for a consultation.

Should I close my credit card accounts if I have too many?

Closing credit card accounts could have a negative effect on your credit score. The reason behind this is because when you close a credit card, you lose that card’s contribution to your available credit limit. By losing available credit, you could increase your credit utilization ratio, one of the main factors that contribute to credit scores

Before making any decisions to close a credit card account you should order a copy of your credit score. Once you receive your credit score, you should receive a list of risk factors. These will describe what factors are causing a negative effect on your credit report.

If one of the factors highlighted states “too many open revolving accounts”, then you may want to consider closing someone or two accounts. If this factor is not listed, then you probably do not need to close accounts but work on another part of your credit score.

Credit utilization ratio

A credit utilization ratio is your total credit card

balance relative to your total credit card limit on

all your open credit card accounts.

The nearer this percentage is to 0 the better

its impact on your credit score.

For example, take an individual who has an excellent 800 credit score and wants to apply for a car loan. He has 5 credit cards open which he monitors regularly and always pays off, but he is beginning to feel like he wants to reduce the number of accounts he has to monitor. He never uses the maximum limit on his cards. It is unlikely that closing one of his credit card accounts will decrease his score enough to prevent him from getting a car loan as he has great payment history and credit utilization which is considered more seriously when deciding on a loan. Because of this, he is also unlikely to get increased rates on his car loan so closing an account would be at his discretion.

“Good or excellent credit scores demonstrate you have responsible credit behaviors and have managed your accounts properly, putting you in a more favorable position to take on another credit card account.” – O’rise Finance Credit Repair Expert

Another individual who has 2 credit cards but a poor credit score of 450 with a payment history including missed payments and maxed accounts, may want to consider closing one of their accounts in order to prevent themselves from continuing a negative pattern that will continue to damage their credit score.

“If you’re using your cards as a supplement to your income and you’re carrying balances each month, then two cards may be too many, even one could be” – O’rise Finance Expert”

Top tip: If in the next three to six months you want to apply for new credit leave your credit card accounts open until after the transaction is complete.

If I have multiple cards, what credit cards have the best credit rewards?

As said before, for some people opening multiple credit cards is a good idea and each card can lead to money saved. By selecting a mixture of cards, you can maximize benefits such as introductory 0% APR cards, bonus cash back on the select purchase, travel rewards, and much more.

It is all about making that decision based on your credit report and your own financial history as to the number of credit cards you can handle.

Top 5 credit cards for credit rewards in 2020

1. Capital One® Venture® Rewards Credit Card

If you like to travel often then this is the card for you. It offers a vast number of discounts on select hotel purchases. If you are planning to take a vacation this year, make use of this credit card. You can book rental cars and hotels through Capital One Travel. This will earn you up to X5 in miles. Remember this card comes with an annual fee of $95. There are no foreign transaction fees if you spend money overseas and further to this include perks of 24-hour travel assistance, travel accident insurance, and others.

2. American Express® Gold Card

If you enjoy eating out as well as cooking at home, this card may be the one you have been looking for. This card offers 4X credit reward points every time you spend a dollar at restaurants internationally plus 4X points at U.S supermarkets. Your value Membership Rewards will vary depending on how you use them.

Credit rewards include annual credit for dining out priced at $120, $100 airline fee credit which can be used for in-flight food and beverages. There are no foreign transaction fees however you will pay $250 in annual fees. This converts to $30 however if you spend on the credit rewards listed above.

3. Alliant Cashback Visa® Signature Credit Card

This card gives 2.5% cashback credit rewards on almost all purchases, good for all shopaholics. The card comes with a competitive cash-back program. It has an annual fee of $90 but the fee is waived in the first year.

You must be an Alliant Union member to qualify for this card. It is possible to open an account to get this card. Alliant pays $5 for you when you join the credit union.

4. Chase Sapphire Reserve®

If you are an avid traveler this is another excellent choice of credit card for great credit rewards. There are many flight and hotel credit rewards to be had including zero foreign transaction fees and offer 3X the points on travel and dining worldwide.

The value of your points is dependent on how you choose to use them. For example, if you redeem travel credit reward points using this card, your points can increase by as much as 50%. Remember that, as a premier rewards credit card, it has a large yearly fee of $450.

5. Citi® Double Cash Card-18 Month BT

If you are looking for a daily expenses card this is a low hassle option that will also provide credit rewards. With one of the highest flat rates offers to really impress you, you also get 1% cashback every time you purchase anything and another after paying them off. This card has no annual fee.

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