Tuesday, June 10, 2008

How Many Credit Cards Should You Have?

So how many credit cards do you have in your wallet. Do yo have promises of better rates, lower fees, more airmiles or better perks causing your wallet to be full of cards and your mailbox full of better offers.

Most Americans carry five to ten cards while some have five times this amount. This is bound to cause havoc on your credit score, never mind being able to manage them.

So how many credit cards is enough. Whilst experts agree that there is no exact number it is more realistic to note how much you spend and more importantly how much you can pay off monthly. Credit agencies warn that the more cards you have, the bigger risk you have for debt and damaging your credit rating.

A good rule of thumb is to keep up to six and to make sure that they are the major ones, MasterCard, Visa, Discovery and American Express as they acceptable almost anywhere. It is most important to pay them regularly and on time to avoid any further charge and find a credit card with low interest rates. Credit cards that offer reward points, air miles or cash back give you something back and the interest rates on these cards doesn't have to be low if pay off the credit every month.

Beware of store credit cards. Each time you open a new store credit card 20 points are taken off your credit score. This is because they are issued to all and sundry, to people who can't otherwise obtain credit. Store cards are often opened, especially leading up to Christmas to get 12% to 15% of purchases but beware the interest rates are much higher. It's fine to obtain the discounts, pay off the balance and close the card. If your shop regularly at the same store then by all means open a credit card to obtain discounts, coupons, bonus points and other perks but just have the card from that one store.

Keep your debt ratio low, under 50% is good. If your credit card has a limit of $3000 don't carry a balance of more than half, $1500. If you want to make a large purchase then split it onto two cards. Creditors do not like to see a card almost up to its credit limit, they will look at you as somebody who is using too much credit, a greater risk who may have trouble paying off the debt. Idealy you should keep your balance low, less tha 30% on each card.

Make payments on time, one or two late payment can really bring down your credit score and increase the rates on your other cards. Remember you are the person responsible for payment.

Credit cards when used sensibly and carefully are great. They offer the user so much cosumer protection and they are so convenient. If you have credit cards then you have credit history. Obtain a copy of your credit report, check it for any inaccuracies and correct any problems. Then slowly, one per month, there is a reason for this, close unused accounts so as to have the recommended number. Keeping the oldest cards, especially if you never missed payments, makes sense as you then have a lengthy and successful credit history.

Having fewer credit cards makes it so much easier to manage them. It is easier to remember payment dates and so avoid late payments and the worry of late payment fees. Also as credit cards increase their minimum payments it will affect your monthly outlay just to meet the minimum payment. Just remember, it is you who is responsible to make your payments and keep on top of your credit.

1 comment:

McCain Election said...

I'm trying to get rid of mine.

John McCain was overdrafted long ago.