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How Many Credit Cards Should I Have? |
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Submitted by Martin Martinez
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Enticing credit card offers fill the mailboxes of thousands of Americans every day. Accompanied by amazing offers of zero percent interest for six months and no fees for balance transfers, 15% to 20% off your first purchase, discount hotel rates and free movie tickets, the list goes on and on. And on impulse we fall to our knees and sign on the dotted line without thinking about just how much another credit card will affect our families, our credit histories, or our financial futures. Before you sign up for another card, ask yourself what is the rule of thumb for credit cards, just how many credit cards is enough? Do you know? Is there a magical number or is it just a matter of how you manage them? If your answer to all of these questions is I don’t know, read on to find out.
Most Americans carry between five to ten credit cards in their wallets, with the average household owing $12,000 in credit card debt. Considering that the median U.S. household income is only $49,772, that is 24% of the income already committed with out considering mortgages or car loans. This is a bit alarming. Especially considering that future creditors prefer to extend credit to individuals or families with a debt to income ratio of 36% or less if 24% of that 36% is already committed to credit card debt, that doesn’t leave room for much else. So just how many credit cards should you have? Surprisingly there is no magic number; however, two to three credit cards is generally viewed as enough.
While there is no magic number, the single most important thing to remember when you encounter the wonderful world of credit cards is that it’s not the number of credit cards that you have, but your outstanding balance and the number of years that an account has been opened. You should aim for an outstanding balance between 25% to 50% of the available credit on each credit card that you have. Any more than that sends a red flag to potential creditors who see your ability to repay, in the event you are faced with a major financial obstacle, decreasing as your debt increases. Additionally, multiple fairly new accounts are viewed negatively.
Something else to consider is that the fewer number of credit cards you have the easier it is for you to keep track of them. Keeping track of them includes knowing what your interest rates and fees are and any changes that may occur with them or how they are applied. Additionally, with just two to three cards you are in a better position to know exactly where you stand with your balances and your spending. To make sure that your credit is working for you and you aren’t working for it, it is pays to know where you stand; fewer cards help you to stay on top of that.
So there is no set number of credit cards that you should or should not have. The key to preventing yourself from getting trapped in the rat race is having a manageable amount, perhaps two or three that you can easily keep track of. It is crucial to know the interest rates for each card, your outstanding balances, and other card features. The next thing is knowing where you stand in terms of your overall debt including credit cards, mortgage, car loans, student loans in comparison to your income. With all of that knowledge in hand, remember two important percentages, the 36% which is ideal for your debt to income ratio and 25 to 50% for your outstanding balances.
Data Sources:
1. http://moneycentral.msn.com/content/banking/creditcardsmarts/p123470.asp
2. http://advertising.washpost.com/the_market/top10/income.jsp
3. http://www.wsws.org/articles/2004/jan2004/debt-j15_prn.shtml
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