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By Barry Choi
Special to the Financial Independence Hub
If you’ve recently walked into the mall, your bank or even the grocery store, there’s a good chance you’ve been asked if you want to sign up for a new credit card. Your first thought might be to say no since you’ve already got one, but with so many different credit cards that come with a variety of offers, it can be tempting to apply on the spot.
You may also be wondering “how many credit cards should I have” in the first place or “does it hurt me to have multiple credit cards?” There’s no straightforward answer so let’s take a look at when it does and doesn’t make sense to get another credit card.
When it makes sense: Pros
Getting another credit card can actually improve your credit score since it’ll increase your credit utilization ratio, which is one of the major factors that determines your credit score. Your credit utilization ratio is based on the amount of credit you’re using relative to the amount of credit you have available to you.
Let’s say you have a single credit card with a limit of $1,000 and you typically charge about $600 on it; that would give you a utilization ratio of 60%. If you applied for a new credit card and you were given a limit of $1,000, your overall credit utilization ratio would drop down to 30% since you now have access to a total of $2,000 in credit. As a general rule of thumb, your credit utilization ratio should be no more than 30%.
You may also want to maximize rewards by using a combination of cards for different spending categories or scenarios. For example, it would be to your benefit to use one of the best Mastercards in Canada if it earns you more points on grocery or gas spending compared to a Visa card. Alternatively, if you currently only have an American Express credit card, you could also apply for a credit card with no annual fee (Visa or Mastercard) and use it only where your Amex isn’t accepted. Since the card has no fee, you won’t need to worry about paying an annual fee on two different cards.
Sometimes it also makes sense to apply for a new credit card for a specific reason. Let’s say you like to travel, a card that comes with no foreign exchange fees or has airport lounge access would be pretty handy to have. You could also offset the cost of your trip by applying for one of the best Aeroplan credit cards, since the welcome bonus could be enough points to pay for your flight.
The above are great reasons why you should have more than one credit card, but that only applies if you’re responsible with your spending. In other words, if you’re always paying your bills in full and on time every month, then there’s nothing wrong with getting another credit card.
When it doesn’t make sense: Cons
The tricky thing about getting another credit card is that you could be tempted to overspend since you’ll have access to more credit. Studies show that people spend more when using credit cards instead of cash, so having access to a higher credit limit or multiple credit cards could potentially result in more spending.
More credit cards also means having to stay on top of more bills.
With multiple credit cards, you’ll need to go through more than one statement every month as well as more logins you need to manage. If you haven’t been paying attention to your spending, you could potentially run into cash flow issues when it comes time to pay your bills.
If you happen to already be in debt, then getting another credit card should be the last thing on your mind. You might be telling yourself that it’ll be a good way to manage your money temporarily, but there’s a good chance you may end up increasing your debt. That said, applying for a low interest, balance transfer credit card could benefit you since it’ll lower the amount of interest you’re paying. Balance transfer credit cards typically have interest rates between 0%-12.99% whereas most credit cards charge 19.99% in interest, so you can see how you could save big.
Final thoughts
There’s no set number of credit cards you should have. Having more credit cards could improve your credit score and spending power but it could also create more risks if you’re not careful. Regardless of how many credit cards you have, always remember to pay off the full balance on time, every month.
Barry Choi is a personal finance and travel expert at Moneywehave.com.
