How Many Credit Cards Should You Have?

credit_cardsHow many credit cards are too many?Look through your wallet. How many credit cards do you count?

Have promises of better rates, perks and lower fees caused your wallet to overflow and your mailbox to be stuffed with hundreds of offers each month?

While most Americans carry between five and 10 credit cards, some people carry up to 50 — which could wreak havoc on your credit score.So, how many credit cards should you have?

Most experts say there’s no single magic number. Rather, the question can be answered by scrutinizing how much you spend and how much you can pay off. But there is an upper limit: Credit agencies warn that the more cards you have, the bigger risk you carry for racking up debt and damaging your credit.

Beware of store credit cards

“Some people go hog-wild at Christmas and open lots of store credit cards to get that 10% to 15% off their purchase,” says Cate Williams, vice president of financial literacy at Money Management International. “Relatively speaking, that is a good idea if you pay off the balance and close the card right away. If you don’t, then you will be costing yourself more money in the long run when your credit score isn’t up to par.”

Credit counselors say that you should open a store credit card if it is a store that you shop frequently. Many store credit cards provide their customers with coupons, bonus points and information on upcoming sales that can only be obtained if you carry the store’s card. However, she highly recommends that you open no more than one favorite-store card.

Some rules of thumb

According to Steve Bucci, Bankrate.com’s Debt Adviser columnist and president of Money Management International Financial Education Foundation, the average person carries 11 “credit vehicles.” Typically, seven are different types of cards and four are installment loans for cars, furniture, student loans or mortgages. Some credit experts see people with 45 or more credit cards — and many of them are high-income earners. Some are people who think that the more credit you have, the better, says Bucci.

He says a good rule of thumb is to keep two to six credit cards. “Make sure the credit cards you have are Visa, MasterCard, American Express or Discover, because merchants will take almost any of them,” he says.

Try your best to pay them off regularly, or if you can’t pay them off, find a credit card that has a low interest rate to use for emergencies when you need new tires or when your water heater breaks. “It’s also a good idea that your other credit card has reward points or air miles, something that gives you something back. That card doesn’t have to have a low interest rate if you pay it off every month.”

Keep your debt ratio low

Another rule of thumb to remember is to keep your debt ratio under 50%. If your credit card has a $5,000 limit, don’t carry a balance of more than $2,500.

“Keep credit purchases under 50% of the credit limit. (If you have a) $5,000 limit — and you want to buy a $4,000 furniture set — split the purchase onto two cards,” says Williams. She says that creditors don’t like to see a card almost maxed out; they look at you as a risk, someone who is using too much credit and has trouble paying off debt.

There is no one sure-fire way to have perfect credit. In fact, four credit experts were interviewed for this story and they offered contradicting advice. However, they all agreed on two major things:

  • Make your payments on time. One late fee or even two can really bring down your credit score and increase the rates on your other  credit cards. You are the only person responsible for payment. 
  • Do not run up your credit. Ideally, you should keep your balance low — less than 30% of your credit limit on each card.

Some debt advisers also warn not to close too many cards at once. It will cause your debt-to-credit ratio to fall. For example, if you have $10,000 of potential credit and a $5,000 balance, you are using 50% of your potential. If you shut down a card with a $2,500 balance quickly thereafter, you will have $5,000 of debt and only $7,500 of potential, upping your ratio to 67%.

“It’s a tricky business, but creditors don’t care, because they know you need credit. If you are a good, money-conscious consumer who pays for everything in cash, basically you are dead to them. So establishing and using credit wisely is so important,” says Rhode. “I’m a huge fan of credit cards — used appropriately, a credit card is a safe way to buy goods — the money is not taken out of your account before you get to dispute the charge. Other forms of payment have less protection.”

“Credit cards are great because they offer you so much protection against fraud that checks and cash can’t guarantee, especially when it comes to return policies or fraudulent purchases,”

Credit card basics

If you have a credit card, you have a credit history. So, the first thing you should do is obtain a copy of your credit report, review it for inaccuracies, correct any problems and then slowly close unused accounts — trying to close one per month.

Not having a lot of credit cards decreases your worry of late fees. It is easier to remember your payment dates. Someone with 15 or more cards probably has a difficult time remembering when all of them are due.

Having more credit and more credit cards does not necessarily make a good rating. The key factors are job stability, paying as agreed and paying on time. Keeping up with payments will build a better credit rating than opening numerous credit-card accounts.

Be aware of the terms on your credit card, because those terms dictate your agreement with the creditor. You need to ask about the interest rate and what penalties are attached to the card.

Also, don’t close your oldest accounts if you find a better card. If you close a card you opened in college 10 years ago because you found a better card, creditors will penalize you, because they are looking for a lengthy and successful credit history.

According to Experian, one of the three major credit reporting agencies, there’s no right number of credit cards for everyone. It depends on how much you spend and how much you can pay off. However, what you can afford at present may change now that most credit cards are increasing their minimum payments.

Just remember that the street of credit fairness runs only one way, and it’s in the favor of the creditors. Credit card companies can change interest rates at any time. The most important thing to remember is that you are responsible to keep up with your bills and stay on top of your credit.

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