If your mailbox is overflowing with credit card proposals, you might be considering taking one. Discarding the clutter of useless offers, you might uncover a hidden gem. In today’s economy, credit card providers are dishing out an array of promotions, filling up our mailboxes, bins, and recycling facilities. Be cautious not to hastily opt for a deal that might harm you in the long run.
Before adding another card to your collection, do thorough research, as reckless decisions could negatively impact your credit score. Currently, it’s an opportune time to get a credit card, with the Federal Reserve maintaining extremely low interest rates until 2013, which benefits the credit card sector as well as the housing market.
Indeed, having several credit cards can affect your credit score. However, having either too many or too few can also adversely affect you when seeking to purchase a car, house, or even land a job. People often ask: ‘how many credit cards should you have?’, and the answer varies depending on your individual circumstances.
Major credit card agencies, namely TransUnion, Experian, and Equifax, take into account the balance between your available and used credit. The lower this ratio, the better for your credit rating. For instance, if you have a credit card with a $10,000 limit and you owe $2,000, your debt utilization ratio is 20%. However, if you have two credit cards each with a $10,000 limit, your available credit increases to $20,000. If you still owe the same $2,000, your utilization ratio drops to 10%.
If you manage to avoid excessive debt, having a number of credit cards can be beneficial. However, for those who can’t control their spending, a single credit card can be detrimental. On the other hand, for some, 15 cards might not be sufficient. The bottom line is that debt can accumulate on any card. To avoid debt, it requires a staunch commitment to timely bill and loan payments.
Each situation varies, but for the average consumer, three to four credit cards should suffice. It’s generally recommended that consumers have a few basic cards: a personal rewards card offering cash back or points redeemable at your favorite stores; a business card for business-related expenditures; an emergency card with a high limit and low interest rate for unexpected expenses; and a travel card free of foreign transaction fees.
Remember, the secret to effectively managing these cards is to settle the balances on time and to avoid overspending. If you adhere to these guidelines with all three to four cards, your credit score could improve within 12 to 24 months. So, don’t disregard all those credit card offers accumulating in your mailbox; there might be a promising deal among them.
