Credit cards

Dollar Scholar asks: How many credit cards are too many credit cards? | Personal finance

Julia Glum

This is an excerpt from Dollar Scholar, the Money newsletter where Senior Editor Julia Glum teaches you the modern money lessons you MUST know. Don’t miss the next issue! Register on money.com/subscribe and join our community of over 160,000 scholars.

I tend to exaggerate when I find something I like.

I recently bought a bedazzler, for example, and for good measure I added 4,000 rhinestones to go with it. Last time I ordered from Bath and Body Works I didn’t get one, not two, but four different candles. And none of them were winter scents, so that’ll be a whole other purchase.

One area where I don’t know if it’s okay to overdo it, however, is in credit cards. I currently have two, but I’ve heard of people who have about 10 in order to maximize the rewards. I’m not a credit card hacker, just a 29 year old woman worried about her credit score, so I decided to investigate.

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How many credit cards are there too much lots of credit cards?

I called John Ulzheimer, a credit expert who previously worked for FICO and Equifax, to get some insight. He told me that there is no one answer when it comes to how many credit cards a person should have. (Looking at you, Dave Ramsey.)

From a practical standpoint, Ulzheimer said he has enough cards “where you’ll never find yourself running out of a payment method.” Basically: To avoid getting stuck at the checkout when a cashier tells me they don’t take American Express, I should have a backup Mastercard. It can also be useful if I’m prone to misplacing maps or traveling overseas – for example, Canada is notorious for not accepting Discover.

From a scoring perspective, Ulzheimer said the concern is my credit usage: the percentage of available credit I’m using at any given time. I generally want to keep my credit utilization rate below 30%, although Ulzheimer prefers not to exceed 10%.

Since my utilization rate is calculated by comparing the amount I charged my cards to the total amount of my credit, I can use multiple cards to keep it low. I just need to do some math.

I can work it upside down. Ulzheimer said to look at my bank statements and figure out what my typical monthly balance is on all my cards for the past year. If, for example, I see that I am spending $1,000 per month, I must have a credit of $10,000 if I want my balance not to exceed 10% of my limit. I can achieve this by having two cards each with a limit of $5,000. Or one with a maximum of $2,000 and two cards with limits of $4,000. etc

In fact, Ulzheimer said, people who use credit cards a lot — and therefore have a high balance — may need five or six. Luckily, this also solves the aforementioned usability issue.

Experian’s director of consumer education, Rod Griffin, was more conservative in his advice. Griffin told me that while there is no “ideal” number of credit cards to have, “one or two is enough” when it comes to my credit rating.

“You should think about your personal financial situation and how you’ve managed your credit in the past when determining how many credit cards are right for you,” he says.

That’s because there’s more to my credit score than usage, and Griffin says “opening new accounts to offset high balances usually backfires on me.” Not only will inquiries hurt my score, but also if I have multiple cards, I might be tempted to overspend. Credit card debt usually comes with a high interest rate.

“Apart from the difficulty of arranging multiple payment due dates, applying for too many credit cards in a short time can make you appear risky to a lender and hurt your credit score,” adds Griffin.

The catch is that not having enough credit accounts can lead to a thin file, which can also hurt my score.

How does everyone handle the rock/hard place? Well, according to a September report from Experian, the average American has three credit card accounts. The average balance is $5,525.

Whenever I consider getting a new card, Griffin told me that I should ask myself if I have a plan to pay off the balance on the card and if it fits my lifestyle.

When I look at the cards I already have, he told me to ask how often I use them, if they have an annual fee, and if they come with any rewards that benefit me. If I don’t use it often, the fees are high, and I’m not really enjoying the benefits, I might want to close an account or two. (My score may temporarily drop as a result, but it should balance out later.)

No matter how many cards I have, it’s important to make sure I use them responsibly by paying the balance in full each month.

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The bottom line

While I don’t need 1,497 credit cards like this guy, I should probably have at least two from a usability perspective. From a credit score perspective, I want to have enough cards to control my usage rate.

It’s true that not having a lot of credit cards can hurt my score, but having too many can too. Going too far – either way – will not benefit me.

“Credit cards aren’t for everyone,” says Griffin. “You can still build a solid credit history without using credit cards, and if you can’t resist the temptation to ‘just charge,’ a credit card could do a whole lot more harm. [than good] to your finances.

A credit repair company could improve your chances of being approved.

Credit repair companies, like Lexington Law, specialize in finding and helping you remove errors on your report to help improve your credit.

More money :

Nice but risky: Before adding an authorized user to your credit card, consider these crucial factors

Here’s why it pays to have a good credit score (even if you’re not buying a house)

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