Scott Bilker is a normal guy in most respects: hardworking, has a family, has a hobby. But his hobby is something of a head-turner. Scott Bilker has the fattest wallet you know, and we're not talking about how rich he is. He has 50 credit cards, down from a personal high of over 80 in 2007.
How'd he do it? He has a perfect payment record, and a very high credit score. But that raises an important question...how many credit cards is too many? The short answer is, whenever it's more than you can handle, it's too many.
How Many Do We Have?
Your average American has four credit cards, but at least 10 percent of us have 10 credit cards or even more. In theory, however, that's not "too much." In fact, one can argue that, as long as you pay them off, the more credit cards, the better. Part of your credit score is your "credit utilization"; that is, how much credit you have versus how much of it you've used. Ideally, your credit utilization is above zero but below 10%, and the more credit extended to you, the better that part of your score is.
Credit Cards and Credit Scores
But doesn't applying for a lot of credit cards at once ding your credit score? That's absolutely correct, for two reasons. One, the more inquiries there are about your credit, the lower your credit score will temporarily be; and two, it lowers the average age of your credit card accounts; the older your card accounts are, the better your credit score is.
So, if you got, say, 30 credit cards, bought a coffee on them every month, and paid them off, that would be a way, over time, to improve your credit score. Of course, a better way to do that would be to simply get a few cards and keep requesting limit increases. But hey, we're talking theory here.
The Downside to Multiple Credit Cards
Now, let's look at the other side of the equation: temptation.
Your average American household with a credit card is over $10,000 in debt. And as a lot of us have learned as the Great Recession wears off and we slowly pull ourselves back into employment and productivity, having that much debt on your mind can be an agonizing prospect when you can barely make the minimum payments.
The problem with having a lot of credit cards is that you need to have a lot of financial discipline to go with it. The reason a lot of Americans are in so much credit card debt is they rack up a huge balance on their credit cards, and simply keep paying the minimum payment...and wind up paying far more than they should.
For example, if you racked up $1000 in debt, at 17.99% APR, and you only paid the minimum of $25...it would take you nearly 10 years and run up over $900 in interest before it was paid off. Double that to $50? Two years and only $200 worth of interest.
Still, imagine what you could do with an extra $90 a year.
So, in short, the number of credit cards you need is the number you have now. Pay off your debt, raise your limit, and keep your cards firmly in their wallet; that's a lot more impressive than having 50 cards.
Image Credit:
http://alansmoneyblog.com/wp-content/uploads/2010/08/credit-card-drowning.jpg
