Education Center
Loan Calculators
Is Having Lots of Credit Cards a Good Idea?
Most consumers today have at least one credit card if not more. Typically, it is difficult to get into too much financial trouble with one card due to credit limits. That's not to say that it doesn't happen because it does. However, as the number of credit cards you have increases, the potential to get in over your head with too much credit card debt increases.
Too much debt and not enough income are what lead to problems such as delinquent payments and a negative impact on credit scores. What is it that credit card companies care about most- the number of credit cards or the amount of debt a consumer has?
Is It the Number of Credit Cards or the Switching of Credit Card Companies?
Is it better to have twenty credit cards in your wallet or is it better to have only three? In reality, the total of the balances on your accounts is more important than the number of cards that you have. After all, what looks worse on a consumer's credit history- having 20 credit cards with a small amount of debt or having two credit cards with a large amount of debt? Get the picture? Obviously, it is much worse to owe a large sum of money to two companies than to owe a little bit of money to 20 different companies.
The manner in which you manage your credit cards has an impact on your credit score as well. Closing several accounts out all at once does not produce a favorable effect on your credit score. Alternatively, acquiring several new credit cards all at the same time does not produce a favorable impact either. Therefore, add or eliminate credit cards in a leisurely manner, being careful to select those with lower interest rates.
What Credit Card Balances Really Mean?
If credit card balances are relatively low, no delinquencies are in existence, and the number of credit cards open at any given time does not fluctuate a great deal, the credit score is not going to be negatively impacted. However, large credit card balances that reflect the income to debt ratio in a negative manner will cause more harm than good. While credit card companies do want to see some spending activity, too much activity is a bad thing.
In particular, lenders take a look at the consumer's income to debt ratio in order to determine whether to approve a request for a loan, new credit, or a higher credit limit. If the consumer already has an income to debt ratio that stretches his income to the limits, he is more likely to be turned down due to his current situation. A high level of debt reduces a borrower's ability to pay new debt. Therefore, it is best to keep your debt level under 50 % of your income, preferably on the low end.
In addition to keeping an eye on how much you spend, take note of which credit cards aren't getting a regular workout. Consider closing a few of these cards outs slowly. This strategy might open up new credit opportunities for you in the future.
