Credit cards give you the opportunity to build credit, get rewarded for every purchase, and use a credit line to fund day-to-day expenses. It’s a great financial product if you stay on top of your credit balance and don’t let it accumulate too much. As long as you do that, you should be fine.
But can you go wrong with having too many credit cards? A single credit card gives you most of the perks, but some people open multiple credit cards to get a wider range of perks and to increase their credit limits. You might have a high enough credit score to get approved for multiple cards, but is that necessarily a good idea? This article will explore the pros and cons of having multiple credit cards so you can decide on the right path for your finances.
Having Multiple Credit Cards: Is It a Good Idea?
Having multiple credit cards can help you in a few ways. You have more financial flexibility and more reward programs available. However, managing these cards can become problematic. Each person is different, and it’s important to consider how you manage your current credit card. If you have a hard time keeping up with payments on your current credit card, it does not make sense to get a new credit card. However, if you have no issue paying on time, you might be ready for another credit card.
Is There a Limit to the Number of Credit Cards You Can Have?
Technically, there is no limit, but you shouldn’t go overboard. Some people go overboard and open up dozens of credit card accounts. Granted, you still have to fulfill credit score requirements to get a new card. Credit card issuers won’t give cards to anyone. You can start with your bank and then create bank accounts with other financial institutions if you want additional cards.
How Many Should You Have?
Most people only need one credit card. It gets the job done and lets you tap into rewards. However, it can make sense for some borrowers to have multiple credit cards. For example, you may have started with a secured credit card to build credit, and once you graduate with an unsecured credit card, it doesn’t make sense to close the secured card. The secured card helps your credit age which makes up 15% of your credit score.
The ideal number of credit cards ultimately depends on the person. How good are you at managing debt? Do you have the patience to use multiple credit cards for slight improvements in reward programs based on spending categories, or do you want to keep it simple? These are some of the questions you have to ask yourself before opening another credit card. It’s also good to assess the pros and cons of owning multiple credit cards before reaching out to credit card companies.
The Benefits of Having Multiple Credit Cards
Having multiple credit cards provides several advantages. Here are some of the top perks:
- Lower credit utilization ratio: Your credit utilization ratio measures how much money you have borrowed against your credit limit. If you have a $5,000 credit limit and borrowed $2,000 against it, you have a 40% credit utilization ratio. In this example, taking out a second credit card with a $3,000 credit limit bumps your total limit to $8,000. Since your debt remains the same when you open another credit card, the 40% ratio (2,000 / 5,000) turns into a 25% credit utilization ratio (2,000 / 8,000). Credit utilization isn’t a trivial number. It makes up 30% of your credit score, and if you get your utilization ratio below 30%, it helps your score. It’s optimal to get this ratio below 10% to have the best impact on your credit score.
- More reward programs: Some credit cards offer better rewards when you buy at the grocery store, while others reward you more favorably for buying airline tickets. A single credit card doesn’t provide maximum rewards across all spending categories. Still, opening up multiple credit card accounts lets you mix and match spending categories with credit cards based on their reward programs. You can get a lot more points and cashback by incorporating multiple credit cards into your mix.
- 0% APR balance transfers: Many credit card issuers provide introductory 0% APR for new cardholders. During this time, you will not owe interest or have any of it build up on your current credit card debt. Some people open a new credit card just to take advantage of these types of transfer policies. You get a reprieve from paying interest, and the APR won’t interrupt payments you make toward the principal.
- Security: If one of your credit cards gets hacked, you can use your other cards to conduct purchases. Having your only credit card get hacked limits your spending abilities. You may have to resort to a debit card, and if your bank account doesn’t have enough funds, the fees can add up quickly.
The Downsides of Having Multiple Credit Cards
We have covered the perks of credit card ownership and why you may want to consider stuffing your wallet with extra cards. However, it’s not a good idea for everyone to open up multiple credit cards. Here are some ways this strategy can backfire.
- Losing control of your credit card debt: More credit cards make it easier to spend. You have a higher personal credit limit since you can spread it across multiple cards. Maxing out on one credit card won’t restrict your ability to use other credit cards. This can create a negative feedback loop that results in several maxed-out credit cards. These financial products are great when used responsibly, but they are destructive in the wrong hands. Even if you don’t max out on every card, it’s still more difficult to manage your finances and make on-time payments for all of them. There’s more for you to do and remember.
- Annual fees: This disadvantage is for people who get stuck with cards that have annual fees. You can get many credit cards without annual fees, but some people don’t read the fine print before getting new cards. These annual fees can add up if you have several credit cards that have this additional expense, but it’s an avoidable problem.
- Hard credit checks: Each credit card application results in a hard credit inquiry. This even reduces your credit score by a few points, and it’s easy to recover. However, if you stack credit card applications (and hard credit checks), your score can take a more meaningful hit. Lenders will feel less confident giving you loans, lines of credit, and other financial products because of your lower credit score and the number of recently opened lines of credit.
Consider These When Deciding to Have Multiple Credit Cards
After knowing the pros and cons, it’s easier to tell if multiple credit cards will help or hurt your finances. Here are some additional details to keep in mind when making your decision.
The Timing and How Often You Get One
It’s okay to get a new credit card every year if you want it. However, applying for many credit cards within a few weeks will have a more meaningful impact on your credit score. You also shouldn’t apply for new credit if you want to get a mortgage, auto loan, or refinance. Getting new credit can hurt your chances at other financial products or result in a higher interest rate.
How to Manage Multiple Accounts
Can you stay on top of multiple credit cards and make on-time payments? Unfortunately, it gets more difficult as you open up more cards. If you don’t always keep up with your current credit card, opening up multiple cards may be a bad idea.
The Effect on Your Credit Score
One hard credit check won’t do much to your score. However, getting several hard credit checks in a short timeframe will have a notable negative impact on your credit.
Annual Fees and Other Costs
These small expenses add up, especially if you have several credit cards. Unfortunately, it’s also easier to lose track of how these small expenses accumulate if you have a bunch of credit cards.
Watch Out for Your Balance and Overspending
Every cardholder should keep an eye on their credit balance and track their budgets. This obligation intensifies if you have multiple credit cards since it’s more difficult to keep track and easier to spend money.
The Perks and Rewards
Are the perks and rewards worth opening up multiple credit cards? Most people open up several cards for incentives. However, if the reward program doesn’t blow you away, you shouldn’t open a credit card with that issuer. How many perks and rewards can you get with a new credit card that you don’t already have with your existing credit cards?