Credit Cards: How Much is Enough?

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How Much is Enough?

Jan, 19th 2017

John D. Rockefeller, the oil company mogul and philanthropist, was once asked, “How much money is enough money?” 

“Just a little bit more,” Rockefeller replied.

Like Rockefeller’s cagey retort, the difficult question of the right number of credit cards to carry has a vague answer. But it’s a hotly debated subject among those who debate such things.

Experts chime in on credit card possession with answers ranging from “none,” an approach favored by pinch-penny types who advocate paying cash and avoiding interest; to laissez faire economists who say that you can carry as many cards as you can reasonably manage and service.

The “more. the merrier” contingent cites the sign-up bonuses, rewards gained, and the comfort level that available credit provides as a hedge against financial emergencies. 

 Of course, the answer to this eternal question depends on a lot of individual factors, including your ability to manage debt and pay on time, your income and cash flow, and your goals for amassing credit.  The correct number can also vary from month to month, as debt is reduced and FICO scores change.

Another clue to the “right” mix is provided by CreditCards.com, a web site that studies plastic wheeling and dealing. They report that FICO high achievers with an extremely good score – defined as those with a FICO score above 785, with 850 the maximum – tend to have seven credit cards. That tally is a mix of open and closed accounts, and includes cards carrying a balance and those that are clear.

This select group carries, on average, four cards with a balance. So, using these folks as an example of how to play the game, you can optimally carry that many cards if you’re an on-time payer and can handle the debt load of four cards. Keep in mind that this group is exceptional, has a long-established credit history (the oldest accounts among them were opened 25 years ago), and have an average most-recent card acquisition of 11 years.

One thing is certain: Americans love their credit cards. Three out of four U.S. adults have at least one, per a Gallup poll.  

THE SCORE CARD

Let’s review the pros and cons of carrying multiple credit cards. First, the reasons to have many cards:

  • You have the power – Things happen in life – car accidents, the need to travel on a moment’s notice, medical emergencies, unexpected expenses. Having available lines of credit can ease the burdens of these moments. It’s particularly necessary in situations where one card declines, a not-uncommon situation for multiple reasons. Having a backup is a necessary tactic.
  • Rewards – With new credit card accounts declining, banks and others are vying for your business with really enticing offers. Sign-up bonuses, low-interest holidays, and particularly points for purchases are being dealt to entice your agreement to take the card. Of course, there is no card that offers everything you may need, so having multiple cards allows you to wheel and deal. Rewards cards are harder to obtain, though, and carry higher than average interest rates, with many hovering around 20 percent, according to research firm Value Penguin.
  • Your credit score – Having multiple cards can actually boost your credit score if you don’t use the allotted line of credit.  And if you are on-time with your payments and regularly use the others, you can boost your score.
  • Protection – It’s a good idea to make most of your purchases using a credit card. Not only will you reap the rewards points, but you will also have an advocate if something goes wrong with your purchase.
  • Record-keeping – Having multiple cards means you can split off expenses into various categories and maximize rewards. For example, if you are self-employed, you can designate one card for business and one for personal needs. It makes it simple come tax time. It’s also a good idea to keep business and personal expenses from co-mingling in case of a lawsuit.

Now, the downside of multiple cards:

  • Your record-keeping – Your deadlines for making payments may vary, and having multiple cards means having to remember what card was used for which purpose. If you’re the type of person who does not pay close attention to finances, more cards equal more potential problems. Many cards have penalties for late payers that escalate interest rates, cancel points accrued, and generally ding you in many ways.
  • Using Too Much Credit – If you’re not paying off your balance each month and accumulating debt, the fine folks at FICO start to take notice. Your credit utilization ratio (determined by dividing the balances into the total credit line) can start to head south, making it more difficult for major transactions like mortgages and automobile purchasing.  A good rule of thumb is to keep your utilization at about 30% of available credit. Any more and you start to look less appealing to your card company. As with anything, paying off the balances and keeping a close eye on what’s showing up on your credit report can help. The three major credit bureaus are Equifax, Experian and TransUnion, and you are entitled to a report from them every 12 months.
  • Security risks – More cards mean there’s more potential for a security breach, and more difficulty for the card holder in immediately responding to any discrepancies. If tracking your spending isn’t your thing, then holding multiple cards may pose a problem.  On the other hand, if you do catch a problem, you will have other cards that can back you up while a new card is mailed.
  • Budgeting – It’s easy to lose track of spending when you are juggling multiple accounts. By having fewer accounts, the temptation to splurge is reduced.

Those are the main arguments for and against multiple cards. It basically boils down to personal responsibility – if you can manage debt well, then certainly take advantage of every opportunity that comes your way. But if you are already burdened by debt and less focused on your bottom line, it may be a good idea to limit your exposure to temptation and the predations of those seeking to lure you into spending, spending, spending your hard-earned income.

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