Personal Finance Questions and Answers for Young Professionals

As I was thinking about getting another credit card, it got me thinking “How many credit cards is too many?” I have been thinking about opening up another card, and another soon after that. After looking over my year end summaries on all my cards the majority of my purchases are in categories which do not have special rewards bonuses. I receive only 1% back on my biggest purchases every year. If you are like me and you are maximizing your cash back rewards, you want a card that benefits you the most where you spend the most.

So how many cards is too many?

Most experts say there’s no single magic number. Rather, the question can be answered by scrutinizing how much you spend and how much you can pay off. But there is an upper limit: Credit agencies warn that the more cards you have, the bigger risk you carry for racking up debt and damaging your credit. – MSN Money

Protecting your credit score
Store credit cards are great to save a quick 10-20% off your purchases but opening them can lower your credit score instantly. Simply opening a store credit card can lower your credit score 20 points. Creditors will see this as a negative because “Historically, store credit cards are issued to anyone with a pulse. They issue credit cards to people who otherwise can’t get credit.” – Steve Rhode, president of Myvesta.

Keeping your debt ratio low is important. This does not mean opening up many cards to increase your allowed limits. Try to keep your balances less than 50% of your total limit. Creditors do not like to see your cards almost maxed out. If you have to make a large purchase, split up the cost among two cards to keep your debt ratio on each card less than 50%.

Pay off your balances in full each month and pay on time. For most cards when you miss one payment, your interest rates will go up and you can kiss your special 0% financing goodbye. Creditors love when you mess up and make late payments because they get to charge you a late fee as well. If you pay your balances in full and on time, you will never pay a dime of interest. This is so important when building up your credit scores.

Keeping up with payments will build a better credit rating than opening numerous credit-card accounts.

No need to close unused credit cards. If you do, don’t close more than one at a time; this will quickly shoot up your debt ratio among your cards. For example if you have a balance of $5,000 and $10,000 in potential credit don’t close a card with $2,500 credit. You will raise your debt ratio to over 50%. Also don’t close an account you have had for a long time just to get better rates or rewards. Creditors like to see a lengthy credit history so closing out your oldest card will shorten your credit history.

Also, don’t close your oldest accounts if you find a better card. “If you close a card you opened in college 10 years ago because you found a better card, creditors will penalize you, because they are looking for a lengthy and successful credit history,” says Joyce Murray of Money Management Internal.

Overview

• • Make your payments on time.
• • Regularly pay off your balances in full.
• • Keep your debt ratio low. Less than 50% on each card.
• • Close out those store credit cards once you have received the benefit.

Stick to these rules and you will build a high credit score and keep it.

http://articles.moneycentral.msn.com/Banking/CreditCardSmarts/HowManyCreditCardsIsTooMany.aspx – MSN Money