Credit cards offer greater convenience and financial flexibility. However, if poorly managed, they're often sources of financial struggle.
For example, USA Today recently published an article on the dangers of 'maxing out' on a credit card. The article states that people often aren't aware of their card's credit limit or how close they've gotten to it. If they max out, their credit score can drop; and while it's possible to recover relatively quickly by making timely payments, some people wind up not paying on time, leading to more serious financial trouble.
Managing your credit cards well is critical. And one of the first steps for doing so is to ask yourself how many cards are right for you.
How many cards should you have?
There's isn't one right answer that fits everyone. But here are some critical points to keep in mind:
- Using multiple cards could potentially improve your credit score. Credit bureaus factor in every credit account you have (including cards - also mortgages, student loans, etc.) when calculating your credit score.
- The number of cards you have isn't nearly as important as the state of your accounts. If your cards all have high balances and you're behind on payments, your credit score will take a hit. You will be in financial straits. The number of credit cards could improve your score only if you're making payments on time and managing your accounts well.
- Improving your credit score or maintaining a good score with one card is doable - but mind your monthly balances. Whether you can make good use of one card depends on the card's credit limit and how you're managing the account. In terms of your credit score, the main downside to having one card is that you could max out more easily on it, as it's your only card. Even if you aren't maxing out, your monthly balances could be too high a percentage of the total amount of credit available to you. (For instance, if every month your balance is $7,000 on a card with a $10,000 credit limit, this might have an adverse effect on your credit score.)
- You need to time your credit card applications wisely. If you apply for too many cards at one time, your credit score might decrease to some extent as the credit card companies will issue a flurry of inquiries into your credit history. Research reputable credit card companies and apply to a select few rather than indiscriminately sending out applications.
- You need to know yourself. Will having multiple cards tempt you to spend more? Will you turn to one card after you max out on another? What will you use the cards for? What system do you have in place to manage them? You need to understand your reasons for getting each card. You also have to understand the risks, including the need to keep your account information secure.
CreditCards.com posts data to their site showing that at the end of 2009, 3.7 was the average number of credit cards per person in the US. However, while having the right number of credit cards is important, your card usage is even more critical.
One further resource to look into is an article from Go Banking Rates, on signs that you own too many credit cards (for instance - failing to keep track of spending and forgetting account details). Make sure you aren't saddled with multiple mismanaged accounts. And don't hesitate to contact us for further guidance on improving your financial situation and coping with current debt.