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Credit cards have become more popular (and vital) to our daily finances than ever before. Open your wallet and how many credit cards do you have? The average American carries between five and ten cards, however some people carry up to fifty! So what is the magic number of credit cards you should have?
Experts say there is no universal number. You may have 15 credit cards and outstanding credit, or 1 and awful credit. What’s more important is the amount you spend and the amount you pay off. However credit bureaus such as Experian and Equifax warn that the more available credit you have, the more of a risk they view you… since you can potentially do more damage.
A good average is keeping three to seven different cards. Make sure these credit cards are Mastercard, Visa, American Express, or Discover. You don’t want to open any new store credit cards. Myvesta, which is a non-profit organization for consumer education says that every time you open a strore credit card, you may get 20 points knocked off your FICO credit score. This is because department store and gas station credit cards are historically opened on more of an impulse. They are often opened by people who don’t qualify for traditional credit cards. Although store credit cards are great for building credit, they tend to have a negative impact if you have good credit. Some experts recommend you should have a store credit card only if it is a store you shop at frequently and always pay your balances in full every month since these cards carry higher interest rates. The card member benefits may include special sales, discounts, and other rewards. If you shop there regularly it may be worth it. If you’re opening up the store credit card for a one time discount of 10% or 15% it’s most likely not. Why? Because if you’re opening cards simply for quick cash, there’s plenty of traditional cards, such as Visa, Mastercard, and American Express, all of which reward you with special $100 statement credits just for opening. You would need to spend at least a $1,000 using a department store new card discount to earn $100 in savings.
Another benefit of having several major credit cards is so your debt to equity ratio stays low. For credit scoring you never want to go above 30% of your available credit limit. Even if you pay the balances off in full every time, it doesn’t matter. The amount due when your monthly statement closes is the amount reported to credit agencies. This is why I recommend having several major credit cards, with good rewards and no annual fee. These won’t cost you anything, yet they can potentially benefit your credit score by keeping your credit utilization percentage low.
Even if you find better cards today than you currently have — don’t close out your old cards if they have no annual fee. Part of your credit record is based on the length of time you’ve had accounts opened. A credit card you opened up a decade ago helps your credit scoring, even if you don’t use it anymore. On that note, be sure to dust off old cards once in a while with a small purchase. Many credit card issuers will stop reporting a card’s history to the bureaus if there’s no activity on it for 6 or 12 months. What I do every three months is take out all my old cards and use them for small transactions, a cup of coffee, a movie ticket, etc. That’s all it takes to make your dormant cards stay active. Just be sure you pay those bills. Since they are ones you won’t get regularly you may forget. When I dust off my cards, I save the receipt and at the end of the week I log into my Bank of America online bill pay and pay the amounts on the cards I used. Since I only make one purchase on each of these older cards, it’s very simple to match up the receipt and the card. That way the bills are all taken care of and there’s nothing to worry about.
Having a strong portfolio of credit cards at your disposal is beneficial when done properly. Not only can they benefit your credit score, but also offer you protection on all of your purchases which checks and cash can’t do. When used wised credit cards are a free insurance policy on your purchases, along with cash back and rewards.
[RIGHT] Last updated March 11, 2011[/RIGHT]