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How Many Credit Cards Should You Have?

There are 68.5 million Visa and Mastercard credit cards in circulation in Canada alone – nearly 2 for every Canadian. With more credit cards than Canadians, it makes sense to ask “How many credit cards should I have? Is there a magic number that improves my credit score?”

Everyone’s financial situation is different, and so the “right” amount of anything for everyone is different as well. What’s important isn’t getting a mythical number that the credit bureaus and banks will all be happy with, but figuring out how many credit cards will make you satisfied.

 

How many is too many?

It’s possible to have too many credit cards, but how many is too many?

·        If you have a lot of cards with annual fees that you aren’t correctly taking advantage of, then you have too many.

·        If you have trouble controlling your spending with credit cards, and you’re unable to pay all of them off each month, then you have too many.

·        If you are applying to cards en masse to try and pay off other credit cards, then you have too many.

Notice how none of those are numbers?

For some people, two or even one credit card may be too many. For others, they can have a dozen or more with no problem. It all depends on you.

 

How can I tell if I have too many?

Paying too much in annual fees

Some of the best travel rewards cards in Canada have an annual fee of $100 or $120. They offer perks like free airport lounge access, travel insurance, and of course the rewards programs, but you have to spend enough per year to recoup the initial cost and get benefits equal to or greater than a similar no-fee card.

Let’s say you have a Scotiabank Passport™ Visa Infinite card and a BMO Air Miles World Elite card. Here’s a list of features for both:

Features

Scotiabank Passport™ Visa Infinite

BMO Air Miles World Elite

Lounge Access

ü

ü

Travel Medical Insurance

ü

ü

Car Rental Insurance

ü

ü

Book any flights with points

ü

ü

Extended Warranty

ü

ü

Purchase Protection

ü

ü

No foreign exchange fee

ü

 

 

As you can see, there’s a lot of overlap between those two cards. Even though the rewards programs are different – the value of one Air Mile isn’t the same as the value of one Scotia Point – the other benefits are nearly identical. Where the Scotiabank Passport™ Visa Infinite comes out ahead is the lack of a 2.5% foreign exchange fee, perfect for travelling. In this case, I wouldn’t recommend holding both cards since you aren’t gaining any additional coverage or benefits.

But that’s comparing apples to apples. What if you were to compare a travel rewards card with a cashback card? Is it possible that there’s a benefit in having both?

The TD Cash Back Visa Infinite has different bonus categories for spending. Take a look:

 

Scotiabank Passport™ Visa Infinite

TD Cash Back Visa Infinite

Grocery Stores

ü

ü

Restaurants

ü

 

Entertainment

ü

 

Transit (excluding gas)

ü

 

Gas

 

ü

Recurring bills

 

ü

 

On a car insurance bill of $200, you’d earn 200 Scotia points, which have a value of $2. If you paid with your TD Cash Back Visa Infinite, you’d earn $6. Over a year, you’d get $72 in cash instead of $24 in Scotia points, and you didn’t have to change your spending at all.

But something else to keep in mind with the TD Cash Back Visa Infinite is its TD Deluxe Auto Club enrollment. It’s much better than other roadside assistance program with one major additional benefit – if you earn enough cashback rewards in the year, it’s essentially free! Instead of paying $78 for a CAA membership, you can get better service for less. Even if you end up not using the card for spending at all, it could still be considered a great value for the roadside assistance alone!

In this case, I would recommend keeping both cards and taking advantage of the bonus categories efficiently. Despite both having annual fees, they can still be worth having at the same time.

 

Having trouble controlling your spending

One thing that Canadians love to do is shop. Consumer spending has increased year over year straight for the past decade and doesn’t show signs of slowing down yet. In fact, the growth from April 2018 to July 2018 was higher than from January to April! With Christmas coming in just two months, we can expect even more shopping to happen.

Credit cards are dangerous for those who are impulsive shoppers because you can spend much more than you earn in a short amount of time. I personally have a combined credit limit of tens of thousands of dollars – there’s no way I’d be able to repay them if I maxed them all out (although I could have one sweet vacation!).

I’m lucky that I don’t have a spending personality. The open credit is nice but not tempting. For others, having so much open credit can lead to financial disaster. Credit card debt is some of the highest interest debt available; the only more expensive debt is payday loans. For some, it’s possible that even one credit card is too many.

 

Having trouble paying your debts

If you’re unable to meet at least the minimum monthly payment on all of your credit cards, you have too many. While making only minimum payments is never a good idea, your credit won’t be hurt as much as when you miss payments. If the cost of interest is making it impossible to pay down your current cards’ balances, consider getting a balance transfer credit card so you can spend less on interest and get out of credit card debt.

Using a balance transfer card has the benefits of reducing interest payments and improving your credit utilization rate, which we’ll talk about later in this post. Since most also have no annual fee, you’re able to keep them open after your debt is paid off, which will improve your credit score.

 

How many credit cards is too few?

In the current digital age, I’m a strong proponent of having at least one credit card to make online purchases that you can’t make with online banking, but in truth you can get by with no credit card at all. But “getting by” isn’t what you should be striving for – you want to excel!

Your credit utilization ratio is how much credit you have available to you vs. how much credit you’re actually using. If you have two credit cards with a limit of $5000 each, your total amount of credit available is $10,000. If you spend $3000 on one card and $1000 on the other, your total utilization is $4000, making your ratio 40%.

In this case, your spending is low enough that you only need one card – why bother with the other one? Because if you remove one card but keep your spending the same, your credit utilization ratio jumps to 80%! Having a utilization ratio under 30% is ideal for maintaining a high credit score. If a card has no balance and no annual fee, there’s typically no reason to cancel it. In fact, it can be better if you don’t!

Another case where you would have too few credit cards is if your income or credit score has increased enough to allow you to get a better rewards card than what you currently have, but you haven’t levelled up yet. If you’re like me, then you got your first credit card in first year university with a low limit and no annual fee so you could start building credit. However, since then my credit score and income have increased (back then I had no income), and I can get approved for better cards. I estimate that even with keeping my spending the same, a different credit card can earn me almost $200 more per year.

 

If you think you should get more credit cards, ask yourself these questions first:

·        Is my monthly spending more than 30% of my total credit amount?

·        Am I paying off each of my credit cards in full every month?

·        Could I be getting better rewards with another card?

 

If you answered Yes to all of these questions, you should compare credit cards to see which is best for you.

 

If you think you have too many credit cards, ask yourself these questions:

·        Do I have trouble controlling my spending?

·        Am I taking full advantage of all my rewards programs?

·        Am I able to make at least the minimum payment on all my credit cards every month?

 

If you answered No to any of these questions, then you should see about cutting back how many cards you have.


Chris Chris 01/26/2019
Canadian personal finance buff and all-around writing enthusiast, Chris loves breaking down complicated money ideas to show that they're really not so complex. 
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