The number of credit cards you should have, a different perspective

Having more credit cards is not always a wise decision

When the question about the number of credit card arises, the answer, one way or another, is associated with the FICO score. Most probably you are concerned about the influence of an additional credit card on your credit score. Although your credit score is highly, being faced with the decision about the number of credit cards, there are other issues that should be taken into account.

Firstly, aside of the desire (or need for that matter) to increase your credit score, you need to know what will you do with the credit card(s) and do you really need a couple of credit cards or  one or two will do for you. Having multiple credit cards is a time-consuming obligation, because you have to keep record for all of them, especially if you are using them in your everyday transactions. In addition, each credit card comes with a limit (line of credit), the more credit cards you have, the higher credit line you have available.

The aforementioned is intro into the second issue you should consider. Namely, you need to be aware about the psychological side of having increased consumption power (multiple credit line). This is especially true for people having hard time to control their shopping “urges”. Having high level of credit line can result in maxing out on the limit, since you do not spend any physical cash. In case you max out all of your credit card limit, most probably you will be faced with the vicious repayment circle. This is in a sense that you will be able to pay the minimum repayment on the outstanding amount on few credit cards, and then start withdrawing the same money to pay the minimum outstanding amount on the remaining credit cards. Keep in mind that an interest is paid along with the minimum amount. This means that, although, transaction vise you do pay the minimum amount, in reality you do not decrease the outstanding amount. In case you have not been captured by the vicious repayment circle (that is a smart thing to do) then you are faced with high interest expenses.

Coming to the reasons as to why do you want to hold more credit cards, putting aside the FICO related reasons. One reason would be to explore the benefits of “0” interest rate for the promotional period on purchases. If done correctly, utilization of this benefit is a smart thing to do, since you could buy on instalments, and repay the outstanding amount at the end of “0” APR period.

Credit cards could also be a helpful product in times of short-term decline in cash inflow, or unexpected cash outflows. In these situations you have two basic options, either to withdraw from your saving accounts or to find other means to raise the needed amount. For instance, borrow from relatives and friends (not recommended), apply for loan, or use your credit card(s). Taking out money from your saving accounts is not always a smart thing to do, because you might be faced with some penalties. Friend and relatives should be considered as lenders of last resort, the loan could be a valuable option, but the procedure for applying and obtaining the loan can take a few days (or even weeks). So having credit card could be considered a smart thing to do, especially in times of short-term need for cash or unexpected expenses.

It can be concluded that, aside of the FICO score related issues, the number of credit cards you should have depend on the reasons you have for having credit cards, as well as your personal behavior when knowing that you have line of credit that you can spend. In addition, do not forget the need to keep record for all of your credit cards, which can be time-consuming task, not difficult though.

Leave a Reply

Top