Adding Credit Cards – How Many Is Too Many?
Every few months Kyle and I consider adding a credit card to our collection to further optimize our rewards. Most of the time we decide not to open a new account but over the summer we each opened one new one for different purposes. (We never carry a balance and credit cards do not interfere with our ability to stick to our budget. I recommend that you develop a track record of perfect use of your existing credit cards before you consider opening new ones.)
Now that we are up to six credit cards I have begun asking myself how many is too many, even though there always seem to be more attractive rewards offered. Somehow six seems like an awful lot, but really what are the pros and cons to adding additional credit cards to one’s financial structure?
Pros
Increased credit limit/credit score
With each new credit line you open, your overall credit limit is increased. 1) More money is available to you to borrow. 2) Your credit score takes into consideration the percentage of your overall available credit that you use, so if you increase your credit limit without increasing your borrowing that will positively affect your credit score. (The converse of this, though, is that closing a credit account can have a detrimental effect on your credit score by decreasing your overall credit limit.)
Further optimize rewards
This is the main perk we care about when considering opening new cards. If you use credit anyway (and properly), why not get some rewards for the spending you would already do? Maybe you have a card that gives you 1% back on all purchases but you see an offer for 5% back in a category you use often. As long as your overall spending is not affected, using a credit card that gives you high rewards is arguably a frugal option.
Signup bonuses
While I wouldn’t advocate opening a new line of credit solely for the signup bonus, it can definitely sweeten the deal. After you meet the necessary qualification for the signup bonus, there is a lot you can do with up to a couple hundred dollars to boost your overall financial picture.
Cons
Hard pull decreases credit score
Getting a new credit card will have a negative effect on your credit score as well as a positive one. When the credit card issuer checks your credit they do a hard pull, which will decrease your credit score between one and five points in the short-term. It may also be difficult to open multiple accounts in a short period of time.
Possibility of paying interest or fees
Will the additional card be the straw that breaks the camel’s back and cause disorganization in your finances? If you overwhelm your organizational ability and lose track of your various accounts, balances, and due dates, your credit cards can turn from an useful tool to an instrument for self-injury. You can end up paying interest or late fees unintentionally and unnecessarily – I find this to be the biggest possible con of all. I recommend using an aggregating site like Mint.com to keep all your accounts in the front of your mind and pay off the balances far before they come due.
Can’t keep up with optimal rewards use
Another possible ramification of the disorganization caused by having too many credit cards is sub-optimal use with respect to the rewards. If every time you get in a check-out line or click over to an online cart you have to ask yourself which card to use, you are bound to accidently only get 1% back on some purchase instead of 2% or 5%. If your purpose for opening a new card is to further optimize rewards, you must ask yourself honestly how you will remember which card to use and evaluate how likely you are to stick to your designed system.
More money spend on annual fees
If you open cards that have annual fees, those fees can add up. And with each additional card you open the marginal rewards decrease so the fees become less and less worth it. Many cards offer to waive the fees in the first year you have the card, but you have to get the fee waived again, cancel the card, or decide that the rewards you’re getting outweigh the fees.
Physical limits
My wallet only has space for 8 cards and it’s currently full! If I wanted to add a new credit card I would have to drop another one out of my wallet.
Conclusion
As with many other things in life, if everything goes perfectly there is little downside to adding credit cards. Most of the potential detriment comes from disorganization so there is probably a natural limit for each person/system. Whether or not adding a card is a good idea for you take some self-evaluation regarding your motivations and weaknesses.
I think Kyle and I have reached our natural limit for memory with the addition of our Amazon card. We’re supposed to be using it for dining but I never think of it! If we want to add another card, I might need to resort to carrying a little index card with me to let me know which card to use each quarter for each type of purchase, which sounds kind of lame. Feeling lame in the check-out line might be worth it for some additional rewards, though…
What is your thought process when you consider adding a new credit card? How many credit lines do you currently have open? What for you is the biggest upside and downside to adding a new card?
photo from Free Digital Photos
Filed under: credit cards · Tags: new account, rewards, signup bonus
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My wife and I each had a bank (debit) card and a cash back card as well as a shared account for Kohl’s. Over a twelve month period, we added a few cards but they were all done strategically. We added a Costco American Express so that we could get 3% cash back on gas purchases, which was huge considering we just bought a camper and increased our gas usage a lot over the summer. We added a Target Red Card to get 5% instantly at the register (it acts as a debit card so it comes right out of our checking). And we added a Lowe’s card to get 5% on purchases there. We considered each one carefully. I probably wouldn’t go any more than that as I feel we’re probably at the point where with one more, it would be easy to lose sight of something, and get stuck with a late payment or such.
Money Beagle recently posted..One Hundred Years From Now, What Will Be Our Greatest Innovation?
It sounds like you have a base credit card that’s easy to go to for everything with the exceptions of those store cards. It’s a bit easier to keep track of where to use store cards than anywhere-cards, but I noticed that even our Amazon card has 2% rewards on certain non-Amazon purchases. Good for you for identifying your limit!
We have six. Two are his; four our mine. But two of mine are store cards that haven’t had a balance on them in years. I know it’s dangerous to carry open cards that you never use, but I do check my credit about three times each year (each student loan disbursement) and their limits are very low so maybe they don’t bother me as much as they should.
SWR recently posted..Why we are looking into adoption and what we’re doing now
We have one card that we virtually never use but it doesn’t bother me too much. About once a year I try to make a purchase with it. Why do you think it’s dangerous to have little-used accounts?
I am currently working on an article on this exact subject!
I am a rewards card junkie. With that being said, we each have 4 cards. A few of the cards will have an annual fee coming up in a few months so I will cancel them before that. I don’t think there’s anything wrong with signing up just for the sign-up bonus, personally. They make the offer and I comply.
For us, it’s just some extra fun money to spend that doesn’t have to be accounted for.
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I don’t think there is anything unethical about signing up for a card just for the bonus, I just wouldn’t want to bother with it if that was the only reason. Having to switch our spending habits during the period to qualify for a bonus is a pain and I’d rather switch knowing the card will be a long-term part of our spending picture.
I’ll look forward to your post! Do you have to carry a cheat sheet on where to use what card to maximize rewards?
No, and I’m really not that organized about it. I agree with you that it would be too big of a pain to use and keep track of multiple cards at a time. I just use one card at a time in order to earn the sign up bonus then I switch cards to the next one with a sign up bonus. The result is that I typically change cards about 3-4 times a year so it’s not that hard to keep track of. Some cards I end up keeping- like for instance my Chase Sapphire preferred card because it has no foreign transaction fees-and other cards I cancel because I didn’t really like the long term benefit they offer.
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Check out “FrugalTravelGuy.com” for ideas on credit card rewards tracking. He does something called credit card churn to maximize rewards. Also, FlyerTalk.com is a great resource for maximizing and gaining mileage and points for airlines and hotels.
Though, these people go to some extreme measures. Like flying around the world in 30 hours just to gain bonus miles.
I am considering this as I don’t need to borrow money for a long time, and the strategies these guys use haven’t hurt their credit score much over the years they have been doing it.
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Thanks for the website recommendations. I don’t think I’ll ever be superextreme about rewards but it’s nice to know the easy strategies to implement.
How picky are you in choosing sign-up bonuses – do you have a minimum?
No, I just go with whatever is the best offer at the time!
I seem to remember that having a large number of cards is a negative factor on your credit report. I know if I got a credit application from somebody who already had a total credit limit larger than their income, I’d be worried about why they needed to get credit from me.
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Best I could find with a quick search: http://www.dailyfinance.com/2012/06/26/can-you-have-too-much-credit/
Answer: No, having a lot of available credit will not negatively affect your credit score. Though I definitely buy your argument that a lender may still choose to not let you open an account – that’s what could happen when you open several lines of credit in a short period of time. Just because you have a high credit score doesn’t mean you automatically can borrow money from whomever you like.
I had this very dilemma last night when ordering Christmas present for my nieces on Amazon. I could have applied for the credit card and gotten the purchase for free! I was on the screen to apply and backed out because we have several rewards cards already. I guess I could have cancelled it when it showed up, but just didn’t want to do the credit pull thing. If we decided to do another rental property next year, I don’t want it to look like I am a credit card application junkie.
Definitely if you have your eye on a larger goal it’s reasonable to pass up the signup bonuses. We actually signed up for the Amazon card to get a free Kindle and since we don’t care much about our credit scores right now it was definitely worth it.
My priority with my credit right now is being able to refinance into a lower rate. That will save me far more money than getting new credit cards with better points will, so I’m not increasing my limits or applying for new credit other than refinancing.
If I were you, I wouldn’t carry ALL of my credit cards around. Just the ones that you use more regularly.
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That definitely makes sense. The credit card rewards game is small potatoes in comparison with the impact of mortgage interest rates.
I actually don’t carry all my cards but Kyle does. The thing is that we tend to only apply for cards that we are planning to use regularly. If we do get the Costco TrueEarnings card, which we have considered, at least that will replace the Costco card in one of my wallet-slots. 🙂
I’m set with my credit cards, and don’t want to open any more. I think that 3 cards are more than enough! Keeping them paid in full on time every month is the priority, and I don’t see the value in adding more in our case.
Tie the Money Knot recently posted..Paying Kids to Do Chores: What Do You Think?
I also think three cards is a lot to use regularly. As our shopping habits change we do consider new rewards cards.
I love credit cards! Like you I always pay off the balance and you can’t be the initial rewards! I plan on purchasing an 80 inch tv with the reward cards my wife and I use.
Wow, that’s quite a lot of rewards! We tend to cash ours out frequently so I don’t see those big balances.
That is impressive what you can get for rewards.
Rightly or wrongly I take the opposite approach and even though I know I am loosing out on some rewards I keep the number of cards to a minimum.
The simplicity for me is worth more than the rewards (I think)
Jon @ Pay My Student Loans recently posted..Student Loan ROI Calculator
I’ve been told not to open any credit cards while I’m looking for a home, and I’m itching to! I’d like to fly for free, and there are a ton of rewards cards that can get me there!
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Don’t worry, the credit card offers will still be there after you become a homeowner!
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