Depending on who you ask, some experts will caution against using any credit card, let alone open a variety of accounts. However, if you’re a financially responsible adult, you should take these warnings with a grain of salt. Yes, credit cards can trap you in a cycle of debt and hurt your credit rating, but if you use them correctly, there’s nothing wrong with having a few in your wallet.
But how many credit cards is too many? If you already have multiple cards, Money.com offers a few things to think about before applying for another one.
How Responsible Are You With Your Current Credit Cards?
Do promotional emails from your favorite retailers tempt you into spending when you probably shouldn’t? Do you deal with frequent overdrafts because you couldn’t say no to a night out with friends? What about using your credit card for big-ticket items when you know you won’t be able to pay off the balance at the end of the month?
If so, then you should avoid opening another credit card account. Having access to too many lines of credit can lead you into trouble if you’re not careful.
“Being ‘good’ with credit cards isn’t about how many cards you have, it’s how you manage them,” Rod Griffin, the Director of Public Education and Advocacy at Experian, told Money.com.
It would be best to keep your credit utilization ratio under 30% and pay the minimum balance every month. If you don’t, your lender may still approve your application but will likely charge a steeper interest rate.
Suppose you currently struggle to keep your credit utilization ratio down, pay the full monthly balance, or even make minimum payments. In that case, a high-interest rate credit card will only make your situation harder.
What Benefits Do You Want From Another Credit Card?
Some promotional offers are worth signing up for, but of course, you can’t jump at the first ones you see. “You only really need one or two cards,” Griffin explained. “But while your bank credit card might give you universal points or cash back, using a particular retailer’s card could get you a greater return.”
For example, if you primarily shop online through Amazon, opening an Amazon Prime Rewards Visa Signature card could be beneficial since you can earn 5% on your purchases. But what about one-and-done bonuses, like generous welcome rewards or discounts for new customers? These types of promotions are even more prevalent during the holidays, and it can be tempting to sign up just to get these perks.
But, as Griffin warned, “Anything you do out of impulse or for status is usually a bad idea, especially when it comes to credit cards.”
So unless you are a frequent traveler or shop routinely, your best bet is to stick with a cash back card.
What Is Your Income?
You don’t need to be a millionaire to open a new credit card with a better credit limit. “Just because someone has a larger income doesn’t mean they use it to pay off debt,” Griffin explained. “The credit made available to you is totally unrelated to your paycheck.”
When creditors review your creditworthiness, they put more weight on your payment history than your income. Even so, it’s important to consider your ability to afford an unusually high balance if an emergency arose.
Mortgage lenders typically look at your debt-to-income ratio to assess your eligibility, but since credit card issuers don’t consider this, your DTI doesn’t impact your credit rating. Still, doing your homework and evaluate your finances can help you decide if opening a new credit card is the right idea.
To figure out your ability to repay your monthly balance, divide the amount by your pre-tax income. In this case, say you make $4,000 a month and pay $200 for student loans and $600 for your credit card every month. Your calculation would look like this:
($200 + $600) / $4000 = .2 or 20% DTI
It would be best to make sure that no more than 36% of your income goes to debt. If you routinely make your payments on time and in full, a 20% debt-to-income ratio puts you in the clear for another credit card.
Most people only need one or two credit cards. However, if you are good about staying on top of your monthly balance and don’t exceed 30% of your credit utilization ratio, there’s nothing wrong with having more.
- Silcox, Kenadi. “How Many Credit Cards Is Too Many?” Money, 7 May 2020, money.com/can-you-have-too-many-credit-cards/.