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Each time you see one of those can-you-believe-how-good-this-is type of sign-up bonus offers for a new credit card, it can be tempting to immediately begin the application process. However, a credit card is kind of like a spouse. When the honeymoon period is over (in the case of credit cards, once you’re earning points at a regular rate), it’s still there when you wake up. You could break up with the credit card, but you’ll most likely wind up putting a dent in your credit score. As you consider adding more pieces of plastic to your personal finance portfolio, you have to tackle a big question: How many credit cards should you have at one time?
There is no simple answer. You could follow the lead of those with the best credit scores. Ethan Dornheim, vice president of FICO scores and predictive analysis, told CNBC that FICO’s research suggests that consumers with credit scores above 800 have an average of three open cards. You could try to follow in the actual Points Guy’s footsteps; at the end of 2018, Brian had 20 open credit cards, ranging from the Chase Freedom (no annual fee) to the American Express Business Centurion Card (a $2,500 annual fee), and still managed to have an excellent credit score in the high 700s. You could try to etch your name in the record books and outdo Walter Cavanagh’s Guinness World Record of having 1,497 credit cards. (Disclaimer: I strongly advise against that record-setting attempt.)
The truth is that the answer to how many credit cards you should have depends on answering a number of other questions about your spending habits and your lifestyle.
For this exercise, let’s start at square one and imagine you have one basic no-annual-fee credit card in your wallet right now such as the Chase Freedom Unlimited or the Citi Double Cash Card. With each yes to the following questions, you can expand to more credit cards, but it’s important to note that I am not advocating applying for these cards in quick succession. Space out your applications to avoid too many credit inquiries in a short period of time, and be vigilant about determining if you’re getting value from each card.
Are You Paying Down Your Balance in Full Each Month?
The first question is the foundation of successful credit card management. If you’re not carrying a balance, congratulations. You’re already ahead of most Americans by not handing over extra cash to your issuer each month. So you definitely have room in your wallet to add another. You could consider adding a card that may cost a bit but will deliver more perks such as the Capital One Venture Rewards Credit Card or the Chase Sapphire Preferred Card, both of which have a $95 annual fee.
Your next card may depend on your first card, though. Why? Because sticking with one program can be more meaningful than diversifying into an entirely different issuer. To learn more, be sure to read “The Ultimate Guide to Credit Card Pairings.”
Are You Willing to Stay Updated on All the Details of Each Card?
Okay, now, you have two credit cards. If you had to sit down and run through all the bonus categories of these cards and identify all the benefits of each of them, would you pass the exam? Credit cards can be confusing, and taking full advantage of them requires paying close attention. It’s not hard to do, but it is easy to forget. It means updating your default card for ride-sharing services when Discover unveils bonus opportunities with Uber and Lyft, and it means staying educated on the details of rental car insurance. If you have the time and energy to keep a constant finger on the pulse of your cards and know when to use which one, the third time can be another charm in expanding your credit card portfolio.
Again, take a look at your spending habits, and see where you can supersize your rewards potential. Are you dining out a lot? Perhaps the Uber Visa’s 4x at restaurants is a good match for you. If you’re hungry for points and willing to shell out a bit more money, go with the American Express® Gold Card instead, especially since you now earn dining points worldwide. The $250 fee (see rates & fees) might make you think twice, but it also earns 4x at US supermarkets (up to $25,000; then 1x) and comes with a number of additional perks.
Do Big Annual Fees Make Sense for You?
If you have three credit cards and you’re still paying all those bills in full each month, you likely have a high credit score — high enough that you will probably be approved for one of the premium credit cards that can be the most rewarding. While cards like the The Platinum Card® from American Express (see rates & fees), the Chase Sapphire Reserve and the Citi Prestige come with elevated earning power, airport lounge access and other awesome perks, they also come with hefty annual fees of $450 or more.
However, those fees can easily deliver a much bigger value to your bottom line — except for the Citi Prestige, which recently lost most of its shopping and travel protections. Look at your activity last year to determine if these perks will matter to you. If you’re regularly traveling and can justify that price tag, go for it.
At this point, you could have four cards in your wallet — one more than Dornheim recommended. But if your credit score is still healthy, you’re in good shape. Continue to monitor the market for new sign-up bonus opportunities and add more cards, but be strategic. Review your cards on a regular basis, and conduct annual audits of your own spending to make sure you’re never paying finance charges and you’re always earning more than you’re paying in fees.
How many cards do you have in your wallet? Share your strategy in the comments section below.
Featured image by Isabelle Raphael/The Points Guy.
For rates and fees of the Amex Gold card, click here.
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