How many credit cards is too many?
What’s in your wallet? I bet there’s at least one credit card in there.
The Canadian Bankers Association (CBA) reported that there are over 75.3 million credit cards in circulation in our country. When you divide that by the number of people aged 18 and over, that’s at least 2.5 credit cards per person. The CBA also found that more than half of those credit cards don’t hold balances at all which means there are millions of credit cards out there that go unused… what’s up with that?
Credit card debt is only climbing as we settle into 2018 and, there are both good and bad kinds of debt.
Unfortunately, credit card debt is one of the worst types of debt because of the high interest rates and the likelihood of card owners holding balances that tend to snowball over time. If you're not prepared, credit card debt can be extremely difficult to pay off.
BMO's Annual Report for 2016 explains that “overall household debt levels in Canada are elevated, raising concerns that the rapid price increases in the [Greater Vancouver Area] and [Greater Toronto Area] could lead to higher delinquencies if economic conditions deteriorated or interest rates rose sharply,” which kind of just happened.
But alas, the drama continues to polarize financial experts! How many credit cards should you actually have?
The debate for credit in general
First off, if you don’t have any credit cards or experience with any type of loan, then you won’t have a credit history. This will present problems when you try to buy a house or car. Lenders need proof that you can pay bills, which is evident in your credit report.
If you don’t have a credit history and you’d like to build one, getting a credit card with your bank institution is a good idea. You don’t even have to make it a big part of your life; you can use it once in a while then pay it off immediately. That’s all you need to do in order to establish the beginnings of your credit history and credit score which will help you buy big ticket items that require credit in the future.
The number of credit cards you have to your name will affect your credit score in a positive or negative way, depending on your approach.
You can use credit cards to your advantage and actually boost your credit when you choose and use them with a bit of intelligence and finesse. When you have more credit it makes you seem more credible and trustworthy to lenders.
Tips for choosing the right credit cards
There are a thousand credit cards under the sun, all promising rewards for the things you buy anyway. Think about what you purchase frequently. Gas? Groceries? Air travel? Retail? Hotel rooms? Concert tickets?!?! There’s probably a card for you, somewhere.
Deciding on this should give you a good idea of where to apply and for what reason. You will probably need stronger credit to get approved for these rewarding credit cards, so it’s important to have decent credit strength from the jump. Finance experts are still on the fence about whether chasing credit rewards are even worth it!
Cardholder beware: these reward cards usually have outrageously high interest rates. Make sure you have an income that supports all the purchases you make on your credit cards, or limit your spending on them altogether so you can afford to pay them off each month.
Having a backup card
That being said, having a backup credit card could be useful if one of your other cards gets lost or stolen. Credit card fraud is a real and rampant issue in Canada. An additional card kept at home could come in handy if you ever fall victim to credit card fraud or theft.
Tips for managing credit cards
If you’re thinking about getting a few extra cards, you still have to keep up with payments in order to maintain your credit score.
Experts say that you should only have as many cards as you can afford. John Ulzheimer, formerly of Equifax is pro-abundance and says "the more credit cards the better," if you can indeed pay them properly.
Ulzheimer suggests having as many as 5 or more credit cards from major credit companies at once. Don’t let them go to your head though, it could lead you to power trip over how many things suddenly become "affordable".
Essentially, the greater capacity for credit, the harder it is to damage your credit score.
“For instance, you might spend $10,000 in any one month - but if you have $100,000 in collective credit space, you’ve still only used up 10 percent of your available credit - which means that $10,000 purchase won’t be as damaging to your credit score as it would be if it were maxing out your space (by, say, maxing out the one credit card to your name and its $10,000 limit).”
The recommended guideline is to keep your debt-to-credit utilization ratio below 30%.
So if you have an available credit of $10,000, it’s best to keep your balance below $3,000; the lower the ratio the better. Forbes gives us a case for opening new credit cards: “Because you're increasing your available credit each time you open a new credit card, having multiple cards can potentially improve your credit score.”
If you want to increase your credit utilization, that is debt vs available credit, only get new cards without fees that you know you won’t rely on. If you end up maxing out that ghost card, you’ll be in over your head.
When cards get closed
It should be mentioned that inactive cards will eventually be closed, so you need to make a few regular purchases and payments in order to keep them activated. If a card gets closed due to inactivity, your debt-to-credit ratio will decrease and your credit score will be negatively impacted; we don’t want this.
When you’re looking at online purchases, think about the cards you use the least and use one of them to make the purchase. Always remember to pay off the purchase once it’s due.
The more cards you have, the easier it is to ruin your credit score. Especially if you’re using all of them and forget a payment on one or more of them every here and there. Can you keep track of the due dates connected to the other bills in your life as it stands? Credit cards give you the feeling of limitlessness. Do. Not. Get. It. Twisted. The money will be demanded down the line, likely in multiples of what you borrowed in the first place.
With more than one card holding a balance, you’ll be incurring more monthly debt if they’re all active. This could potentially throw you down into a deep, sad, financial hole. You want to avoid carrying any huge balances, or missing any payments at all costs—you don’t need all of them in your wallet every day.
Applying for new credit
Every time you apply for a new credit card, there will be a “hard inquiry” on your credit report which dings your score down a bit. This will rebound over time, but will limit your ability to apply for various loans if they occur too closely together.
Consider your future goals. Having a bunch of credit inquiries on your report will impact your score and potentially impair your ability to take out major loans if you need one. Ask your creditor if they can increase your limit instead of jumping to another card.
Now, if your credit score is good people will throw a zillion credit cards your way, even when you're not looking to apply for one. Don’t say yes to all of them.
You should be able to pay off your card(s) in full at the end of every month, no matter how many credit cards you have. This is the most important thing when it comes to having 1 or 50 credit cards: do you pay your bills on time? And, how are you utilizing your credit (load)?
Lifehacker explains that “According to Credit Karma there is a correlation between having a high credit score (800+) and having more credit cards (7), compared to people with lower scores.” But, this could be because people with higher credit cards have more credit available to them.
In any case, check your credit online often, there can be errors on it.
Don’t get tricked into spending more money just because you have more credit. People suggest having one or two at maximum, but factually, the amount of credit cards you have does not matter.
What matters is the amount of balance you hold on each, and if you’re above your recommended debt-to-credit ratio. If all your cards are maxed out, you should look at debt consolidation.
Be smart and financially responsible no matter how many cards you decide to take on. If you have more than one or two, let the immortal words of Usher Raymond ask you, Can U Handle It?