Today, it is becoming increasingly difficult to do without a credit card. Credit cards are not only more convenient for personal purchases, but also enable online purchases and remote reservations.
In addition, many credit cards can help you make your money work for you, with reward systems that help cardholders earn points with every dollar spent. And, they can also assist you to build and enhance your credit score. Your score plays a key role in your ability to secure a range of financial products, and paying your credit card bill on time each month can help you build a healthy credit profile.
Ninety-five percent of adult Canadians have at least one credit card in their wallets, paying for most of their purchases. In addition, about three-quarters of these consumers have a credit card offering some kind of reward program.
The question is, should you carry more than one credit card?
How Many Credit Credits Should You Have?
The number of credit cards that are right for you can be very different from someone else’s. Ultimately, the number of cards you carry should reflect how many you need to optimize your spending as long as you are responsible for your cards.
Credit cards have very high interest rates, which can easily push up your outstanding balance if you have a habit of not paying it back in full every month. However, if you pay off your entire credit card balance every billing cycle, you can avoid these sky-high rates.
If you can pay what you put into credit each month, there is no reason not to have a variety of cards. So one card could be great for paying out rewards for every dollar you spend, while another could have excellent travel insurance.
However, you need to keep in mind the annual fees as many credit cards charge a fee every year. Make sure that the benefits associated with each credit card are worth paying these fees every 12 months.
However, for most people, one or two credit cards should be enough. So if one credit card does not work for any reason, you have another card as backup. In this case, the two cards should come from different credit card providers.
Every eligible Candian should have a credit card, not only to facilitate spending and take advantage of the benefits that come with it but also to build credit. As mentioned earlier, having and using a credit card is one of the best ways to build and improve your credit score, which will play a key role in your financial life.
How Many Credit Cards Are Too Many?
There really is no magic number when it comes to how many credit cards are too many. As I said, as long as you pay your credit card bills carefully each month and weigh up the annual fees against the perks that each card offers, there is no right or wrong answer to how many you should take with you.
Ultimately, the right number of credit cards is a personal choice for you, depending on your current credit score, spending habits, and financial health.
However, there are things to consider when applying for multiple credit cards:
- Applying for excessive credit cards in a small period of time. Several factors affect your credit score. Applying for multiple cards in a short period of time can temporarily affect your credit score for a few points. That’s because creditors want to review your credit report to verify your solvency. Excessive of these “hard inquiries” within a small period of time may not be good for your credit score.
- Your ability to manage credit cards. If you are not financially disciplined enough to manage multiple credit cards and either forget to meet payment deadlines or have a habit of topping up your balances, you may want to carry only one or two cards with you.
- Another factor that affects your credit scores is the age of your credit accounts. The older an account, the better for your credit score, especially if it has a good reputation. However, pulling many cards in a short period of time will effectively shorten the age of your total credit, which may not be good for your credit score in the short term.
Advantages and Disadvantages of Multiple Credit Cards
There are some advantages and disadvantages to carrying multiple credit cards before you start applying.
- Greater variety of benefits: Different credit cards have different benefits. For example, one can be great for offering high rewards for every dollar spent, while another can be great for insurance. Some offer VIP perks while traveling, and others can come with a very low interest rate. With multiple credit cards in your wallet, you have a credit card for every scenario.
- More purchasing power: If you ever find yourself in a situation where you have to spend more than you would normally spend, a few different credit cards can give you more access to credit if needed.
- Lower credit utilization: Your credit utilization rate is expressed as a percentage and refers to the amount of credit you use compared to the total amount of credit available to you. It is another factor that can affect your credit score. In general, it is best not to spend more than 30% of your available credit limit to keep your credit score healthy. If you open one or two new credit card accounts, you can increase your credit limit while lowering your utilization rate.
- Backup Payment: While Visa and Mastercard are generally accepted almost everywhere, American Express is not always accepted. But what if you have a certain type of Amex that you have taken out due to a special perk that it offers you? If this is your only card in your wallet, you would be unlucky if you were to spend money anywhere that does not accept this type of credit. Costco, for example, does not take Amex. Therefore, having cards other than backup may help you get around this problem.
- Managing multiple invoices: With many credit cards, there is a need to be more careful in managing all invoices. You will most likely have to deal with different due dates and manage a variety of statements at the same time. If you do not have a good track record of effectively managing your money or are new to the credit card world, you may want to keep the number of credit cards in your possession low.
- Increased temptation to spend: With multiple credit cards at your fingertips and thousands of dollars of available credit, it can be very tempting to spend as much as your credit cards can handle. If you are the type who spends too much, then it may not be right for you to have more than one credit card.
- Annual fees: Many credit cards normally mean a lot of different annual fees. This can add up to hundreds or even thousands of dollars you have to pay each year.