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The average number of credit cards a Canadian has is 2.4 per person. This statistic suggests that most Canadians have more than two credit cards, or at least one. It would be easy to tell you the magic number of credit cards which will best serve you, but the truth is, it’s impossible to say. Every person’s relationship to money and credit is different. For some people one credit card is hard to manage, for others, one credit card would be too few.
Let’s talk about the benefits and draw backs of multiple or single credit cards. It is highly encouraged to have at least one credit card for credit history building purposes, emergencies and to learn the foundations of financial health and proper credit management.
Benefits Of Multiple Credit Cards
If you’re someone who struggles with making payments on time or managing bills in general, you may be wondering why in the world people would want multiple credit cards. There are a couple of huge benefits to having multiple credit cards. Let’s explore what they are below.
Credit Utilization
The biggest benefit to having more than one credit card is that you increase your credit utilization limit. Credit utilization represents the total amount of credit you use out of what you have access to. For example, if you have a $1,000 credit limit and pay $500 worth of bills using your credit card every month, your credit utilization is 50% ($500 / $1,000), even when you pay your credit card in full every month. Ideally for a strong credit score, you want to keep credit utilization below 30%. Every time you get a new credit card you increase the total credit you have access to and improve your credit utilization. Let’s say you get a second credit card and now have a total credit limit of $2,000 and continue to pay $500 worth of bills each month. Your credit utilization has automatically dropped to 25% ($500 / $2,000). This places you under the golden zone of 30% to maintain and improve good credit scores. Multiple credit cards help by giving you more room to borrow what you have access to, without negatively affecting you.
Building Credit History
Another benefit to having multiple credit cards is building credit history with multiple credit issuers. In addition, if you make all your payments on time and pay in full, this reporting will improve your credit score. It improves your credit by adding healthy credit history and by showing that you can handle multiple credit cards at once.
Rewards
Credit cards often come with various rewards, but each once is unique in what they have to offer. Some people have multiple credit cards to maximize rewards. Some credit cards have points or cash back for groceries, eating out, entertainment, or even reoccurring bill payments. Beyond cashback or rewards programs, some credit cards give individuals early access to concert tickets or exclusive access to deals and events. By having multiple credit cards, you can take advantage of various awards while paying your bills.
Never Be Left Without
A lot can go wrong in terms of finances, especially when it’s intertwined with technology. Credit cards can get lost, stolen or frozen because of fraudulent activity. If you have ever been stuck at a register trying to pay with a card that “should be working” you may know the stress of a frozen credit card. People like to have a second card for these situations. It can really help to have a backup option when traveling, as a lot of surprise situations can arise. When you are traveling, misplacing items and flagged accounts can be a common issue, but with multiple credit cards you will be prepared.
Problems Of Multiple Credit Cards
The biggest problem with multiple credit cards is it’s easier for people to over-extend their finances. Having a credit card is a large financial responsibility, and requires a lot of learning, practice, and discipline. There can be a downside to having multiple credit cards.
Too Many Credit Cards Looks Risky
When you have a lot of credit cards on your credit report, you may look like a risk to future lenders, even when you make payments on time and maintain a solid credit history. Your credit report shows your overall credit health, and even when everything looks good, companies may not want to be the fifth, sixth, or seventh company that ultimately puts you over the edge. In fact, some companies may automatically deny a credit card application if you have applied for too many credit cards in two years, even if you have managed them responsibly.
Juggling Act
For some people, even one credit card can be difficult to use responsibly. When you introduce more credit cards, suddenly the juggling act of managing multiple bills becomes too difficult. Many individuals avoid multiple credit cards in fear of overspending and getting caught in a cycle of debt.
Are Multiple Credit Cards Right for You?
Credit scores are an important part of financial health. Credit cards are the simplest and quickest way to build credit history and improve your overall score. When you learn to manage one card effectively, you can consider a second card to get some of the security and benefits of having multiple credit cards. From there, you can assess and determine for yourself if you need more credit. Only apply for what you can manage and try to keep credit cards open as the length of time you’ve held a card can help your credit score. Avoid canceling credit cards and never apply for too many, especially in short period of time. Your relationship with credit is long term, and sets you up for mortgages, car loans and background checks. Take the time to build a strong and healthy relationship with credit cards, so you can really learn your habits and what you need to succeed financially. Taking this time will help you learn the right number of credit cards for you.
