Credit has undoubtedly created a system of convenience for many consumers. However, with this convenience comes a moderate amount of micromanaging, especially as it pertains to one’s credit score. Your credit score is an incredibly powerful number, dictating both your ability to acquire loans and what those loan rates will be on everything from housing to cars to small businesses. Today, let’s discuss how the number of credit cards you have (or in other words, open lines of credit) affect your credit score, as well as your general financial health.
Different Kinds of Credit Cards
Before we dive into the right number of credit cards, let’s break down the different kinds of credit cards that are common among American consumers.
Rewards Cards offer consumers advantages for specific types of spending tailored to each card. The most common rewards are travel rewards such as air miles or hotels discounts. These cards often include sign up reward bonuses which can be alluring to card shoppers.
Return on Investment Cards:
These cards offer more straightforward rewards for consumers. Essentially you get instant cash back on specific spending. For instance, frequent commuters may want a card with a cash back bonus on gas spending. These cards benefit those who want to capitalize on their day-to-day spending, and you can tailor them to your needs with the card you choose.
Lastly – retail cards are specific to different stores. They benefit consumers who consolidate spending at particular stores. Retail cards are becoming increasingly common, with the average American owning 2.5 retail cards, according to Experian.
How Many Credit Cards Is Too Many?
According to Experian, we know that the average American adult owns about 3 credit cards. It’s important to keep in mind each line of credit you open can initially lower your score. However, the most important factor of having multiple credit cards is how you actually manage your spending on each card. Having multiple lines of credit, actively meeting all of your payments and keeping your credit card utilization below 30% can actually benefit your credit score in the long term. This illustrates to loan providers that you’re able to manage multiple payments and you don’t rely too heavily on credit.
What may not seem intuitive at first is that closing old credit accounts isn’t always beneficial. In fact, older credit accounts are not recorded on your credit report, and closing them prematurely won’t boost your score. In addition, closing old credit lines could negatively affect your utilization– especially if your outstanding balances are close to your credit limits. The amount of cards works best for you can also be situational. First time credit card holders should likely stick with one card and work at building their credit through consistent payments. On the other hand, those with mortgages, car loans, and other long term expenses benefit from building their credit across multiple cards if they hope to seek second mortgages or refinanced loans.
Your Credit Union Can Help You Manage Your Credit
Whether you’re looking to build credit with your card or looking for a new card, Your Credit Union is here to help you manage your credit and maintain a financial health in every step you take. Drop by one of our three branches to learn about our No Annual Fee VISA Platinum Credit Card today!