How many credit cards is too much?
Some financial “gurus” will tell you to avoid credit cards like the plague if you want to avoid getting into debt, let alone diversify the types of cards you own. But if you are an independent adult, able to make decisions on your own, make smart choices about credit cards is not something to worry about.
However, there is a fine line between not having “enough” credit cards and having too many. Here’s what to consider before adding another line of credit to your portfolio:
Ask first: how good am I with my current credit cards?
Do you skip every * flash sale * email in your inbox? Do you ever find your bank account negative because you couldn’t resist ordering Thai food with friends? What would you say make big purchases on your credit cards that can’t be paid off in full at the end of each month?
If so, then you don’t want to put yourself in a problematic situation by having too many lines of credit available to you.
“Being ‘good’ with credit cards isn’t about how many cards you have, it’s how you manage them,” says Rod Griffin, director of public education and advocacy at Experian.
Credit lenders seek to see that you use less than 30% of your available credit and pay at least the minimum payment due on your cards each month. Even if you don’t follow these basic rules, you can still get approved for credit cards, but the interest rates will likely be much higher than someone with a good credit history.
If you’re already struggling to stay below a certain amount without making those payments in full, a high interest rate can throw you into more murky waters. If you’re in debt with a wallet full of Visa and American Express, adding more is probably not a good idea.
Then ask yourself the question: what benefits am I looking for?
There are times when special loyalty card promises make sense, but you have to be strategic with them.
“You really only need one or two cards,” Griffin explains, “But even though your bank credit card might give you universal points or cash back, using a particular retailer’s card could earn you more.
So if the vast majority of your purchases are done through your Amazon Prime account, it’s probably not a bad idea to add the Amazon Prime Rewards visa signing to your wallet for that sweet 5% Cash Back on Amazon purchases.
But what if the benefit is a more here and now situation? Many retailers offer big signing bonuses or price reductions when you sign up for their credit card program. Griffin says it can be especially appealing during the holidays, as companies push employees to promote their store cards to get shoppers to buy more.
“Anything you do on impulse or for status is usually a bad idea, especially when it comes to credit cards,” says Griffin.
Most of the time, unless you are a regular buyer or frequent traveler, it is better to use a cash-bank bank card.
How much money do I earn?
You don’t have to be six digits to add a new credit card with a higher limit to your arsenal.
“Just because someone has more income doesn’t mean they are using it to pay off debt,” Griffin says. “The credit available to you is completely independent of your paycheck. ”
When determining eligibility, credit card lenders prioritize repayment history over income. That being said, it’s not a bad idea to consider whether or not you have the funds to pay off a higher balance than usual in potential emergency situations.
While mortgage lenders use a debt-to-income ratio to determine eligibility, credit card companies do not have such a requirement, and your DTI has no effect on your overall credit score. However, doing your own math can give you a good idea of whether or not it’s safe to take out a new line of credit.
To calculate the ratio you want, take your monthly debt payments and divide it by your gross monthly income. Example :
($ 200 + $ 600) / $ 4000 = 0.2 or 20% DTI.
You want to aim to use less than 36% of your monthly income to pay off your debts (by mortgage lender standards). can probably safely apply for another credit card with no problem.
So, is there a perfect amount of credit cards to be had?
Usually, if you have a credit card or two, you’re good to go. But if you pay off your bill in full each month, never use more than 30% of the credit you receive and make informed choices, then it doesn’t necessarily hurt to have a lot of credit cards, especially if they offer a wide range of benefits.
Generally, you don’t want to have multiple cards that all serve the same basic purpose. You don’t need a Costco, Sam’s Club, and Amazon credit card if you like to buy in bulk – instead, select the store you frequent the most and earn points through store loyalty.
“Credit cards open up new opportunities,” Griffin says, “If you are a low risk borrower, your priority should be to make sure your wallet is the right mix, without limiting your options. “
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