How many credit cards should you have? It’s not zero, say experts

Having a bank card — and utilizing it responsibly — is an effective approach to begin constructing robust credit score, mentioned Ted Rossman, senior business analyst at CreditCards.com.

Establishing good credit score is “important” for qualifying for loans corresponding to a mortgage or auto mortgage, and for different issues corresponding to shopping for a cellular phone, renting a automotive or getting a job, the Client Federation of America notes. Sturdy credit score additionally helps customers qualify for decrease borrowing prices.

Not everybody makes use of a bank card in a financially optimum approach, nevertheless. Eighty-two p.c of American adults had a bank card in 2022, in line with the U.S. Federal Reserve. About half of them carried balances from month to month no less than as soon as within the prior yr. Since bank cards typically carry excessive rates of interest, carrying a stability (i.e., not paying off a card in full every month) can add considerably to family prices.

Rossman recommends first-time cardholders get a card with out annual charges and with zero-interest, at first, no less than, and that they pay their stability in full and on time every month. It is very important make sure that the rate of interest can be comparatively low after the preliminary no-interest supply runs its course.

There are virtues to sticking with only one card, consultants mentioned.

Among the many largest: There is a simplicity to preserving monitor of only one set of due dates and different key particulars corresponding to card advantages, mentioned Bruce McClary, senior vp on the Nationwide Basis for Credit score Counseling.

“For those who’re limiting your self to at least one card, it helps simplify the method of debt administration,” McClary mentioned.

Nevertheless, there might be drawbacks to having only one bank card. For one, not all companies will essentially settle for your card model.

“In these instances, in would possibly make sense to have two totally different card sorts: Visa and Mastercard, for instance,” McClary mentioned.

Equally, a client who operates a enterprise can separate their private and enterprise bills through the use of two playing cards, he added.

Shoppers can prioritize a stable all-around card as a main one, consultants mentioned. An excellent “basis” for customers could also be a card with no annual charge that pays 2% money again on all purchases, for instance, Rossman mentioned.

A second would seemingly be primarily based on how customers store and the way varied playing cards divvy up rewards and advantages, consultants mentioned. For instance, frequent vacationers could profit from a card geared towards journey rewards and comes with out overseas transaction charges.

“That is the place you must make some selections for your self,” McClary mentioned. “It’s a must to take into consideration your every day life, the place you store and the place you may be more than likely to redeem the factors you are incomes.”

Web sites corresponding to NerdWallet and CreditCards.com will help decide the most effective reward card for you, McClary mentioned.

As well as, having a second bank card, or extra, will help construct an individual’s credit score utilization ratio, mentioned Curtis, founder and CEO of Curtis Monetary Planning.

That is the ratio of what customers owe relative to their whole credit score restrict. Credit score utilization is a vital determinant in a single’s credit score rating and having one which’s too excessive can cut back your rating.

Cardholders ought to hold their ratio beneath 30% throughout all accounts, consultants mentioned. So, in a fundamental instance, a client with a $10,000 credit score restrict would not need their stability to exceed $3,000.

Having a couple of card raises one’s general credit score restrict, and with accountable use, can cut back one’s credit score utilization ratio.

“If an individual wants a couple of card to maintain their credit score utilization ratio low, then I might say that may be a good motive to have a couple of card,” Curtis mentioned.

However this can be a balancing act.

Having too many playing cards can typically make customers appear like overeager debtors and thereby cut back their credit score rating, even when they’ve low balances, McClary mentioned. Lenders get the notion of a “compulsive borrower” if there are too many purposes for credit score in a short while body, he added.

Spreading purposes out — one or two in a six-month interval, and not more than 5 in a two-year span — is usually protected, Rossman mentioned. That features purposes for every type of debt.

Moreover, having a number of bank cards could add to the prices of carrying credit score if they’ve annual charges, McClary mentioned.

It is “important” for customers who’re disorganized or are likely to overspend and carry balances on their playing cards, as an alternative of paying their balances in full every month, to restrict their playing cards, maybe to only one, Curtis mentioned.

“If an individual is extra fiscally accountable, I see no hurt in having a couple of card,” she mentioned.

Typically, customers ought to at all times try to repay balances every month, automate their month-to-month funds and safe a card with the bottom rate of interest potential, she added.