Raft of credit cards can be good or bad

Optimal number debated but how used is called more important

May 18, 2008|By Eve Mitchell | Eve Mitchell,Contra Costa Times

WALNUT CREEK, Calif. - Most people who use credit have more than one card. But just how many cards are too many?

Some experts believe there is no set number to shoot for when it comes to how much plastic to have in your wallet. It's not the number of cards, but how the cards are used that's important. Others say how cards are used is indeed important, but so is having just a few cards as part of a strategy to help achieve or maintain a good credit score.

In the United States, the average cardholder has seven credit cards and two debit cards, according to www.cardtrak.com, which provides consumer information about credit cards.

As far as Jane Viator of Walnut Creek is concerned, that's too many cards. She and her husband, Robert, each have a major credit card and a store card in their individual names. They also share a major credit card that has a rewards feature and gets the most use.

"If you put it on a credit card it adds up with astounding speed," she said.

That is all the more reason to have no more than a few credit cards, said Bill Hardekopf, chief executive officer of www.lowcards.com, a Web site that helps consumers compare credit cards.

"There is the temptation of using them and charging more and more," Hardekopf said. "Why tempt yourself with that situation?"

Consumer experts also point out that having too many credit cards could make a creditor view you as a poor credit risk. That's because having all that plastic at your disposal means that you have the potential to run up large balances.

While the number of cards does matter, so, too, does something called credit utilization. Credit utilization measures how much you are spending of your available credit limit from all cards combined. The lower the balance, the more favorably you are viewed by lenders and credit rating bureaus.

Emily Davidson, a credit expert at the personal finance Web site www.credit.com, puts more emphasis on credit utilization than the specific number of cards held by a consumer.

"It's one of those topics people always want an easy answer for - like six - but unfortunately that's not the way it works. It's actually a myth that you can hurt your credit score by having too many credit cards. That is not true. ... It's not about the number of cards. It's really about how you are using the cards," Davidson said.

Some consumer experts advise consumers to keep their spending balance to no more than 50 percent of their available credit limit. Others recommend no more than 30 percent.

Davidson is stricter.

"You never want to spend more than 10 percent of your available credit limit," she said.

In some cases people should have only one credit card, Hardekopf said.

"It depends on the type of consumer you are. If you carry a balance from month-to-month you need one credit card and that is the one with the lowest possible interest rate you can find," he said. "If you do not carry a balance, I think you need one or two rewards cards and that depends on the specific rewards you might be after. You might be able to get a great gas rebate on one. I do not believe you need a whole bunch of credit cards. Carrying too many credit cards can affect your credit score negatively, which can affect your interest rates."

Hardekopf recommends that consumers stay away from store credit cards because they tend to have higher interest rates than bank-based credit cards.

Many consumers with credit cards that aren't being used may think about canceling them.

That's not a good idea, Davidson said. Doing so could lower your credit score since the score is partly based on how many years back your credit history goes. If you end up canceling that first credit card, you are eliminating your earliest credit history, she said.

For example, say you typically have a $10,000 balance on a $20,000 credit limit among four cards that each have a $5,000 limit. That works out to a 50 percent credit utilization. Canceling one of those cards while having a $10,000 balance would reduce your credit limit to $15,000 while increasing your credit utilization to 67 percent.

"Keep those old cards open," Davidson said, adding that if you are not using those old cards, periodically check your credit reports to make sure someone else is not using them illegally.

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