Who doesn’t love cash back? When you have the option to get great rewards from your credit card, it’s only natural to want to maximize your output. Sign-up bonuses are particularly tempting! Where people get in trouble is when they sign up for too many credit cards and they can’t manage them all, or they overspend trying to meet a sign-up requirement. A rewarding promise could quickly turn into an ongoing struggle with high-interest credit card debt.
Deciding how to maximize credit card use is very personal. There are two main strategies you can take, but first, let’s answer a few questions to help you decide which strategy better fits your needs.
Is It Good to Have Multiple Credit Cards?
In short? It depends! It’s usually good to have one credit card, as it can help you build up your credit history as well as serve as a backup source of funds in case you’re low on cash. Maintaining multiple credit cards can be very rewarding, allowing you to rack up a variety of rewards in the form of cash or perks. Having multiple credit cards can also benefit your credit score by lowering your utilization ratio, as long as you maintain little to no balance on each card. However, depending on how frequently you apply for new cards, it could also negatively affect your credit score with multiple hard inquiries and by lowering the average age of your credit accounts. You will also have to actively manage multiple accounts to avoid missing payments.
SO, HOW MANY CREDIT CARDS SHOULD YOU HAVE?
In 2017, Experian reported that the average American had 3.1 credit cards. However, the same study indicated that the average balance on cards was over $6,000. The “correct“ amount of credit cards depends on your credit score and goals, but it shouldn’t be so many that you can’t pay off your balance each month.
Strategy #1: Maximizing Credit Card Rewards with Multiple Cards
Every card has slightly different rewards, and it’s own unique sign-up bonus. If you’re careful about it, opening up multiple credit card accounts can give you the most in return. Some people even take part in a practice called credit card churning, which is opening and closing the same credit card multiple times to continuously earn the sign-up bonus. Some credit card companies place limits on how many times you can receive a sign-up bonus.
In order to maximize your rewards with this strategy, whether you’re churning credit cards or just managing multiple credit cards with different types of rewards, you have to be extremely organized. For every day spending, you’ll need to remember which card provides which rewards, and use the right card in each situation. For example, some cards offer extra points for purchasing gas or groceries, so you’ll have to remember in the moment which card to use. If you’re trying to earn sign-up bonuses, you’ll typically have to meet a list of requirements within a certain timeframe, so it’s important to keep track of your progress towards that short-term goal. Some rewards, like airline miles, eventually expire as well, so you’ll need to make sure you use them on time – or else risk losing the reward you worked so hard for.
Beyond being organized, you also have to assess your financial ability to manage multiple credit cards. If a credit card requires you to spend $5,000 within your first 90 days to qualify for a sign-up bonus, and you don’t typically spend $5,000 in a 90-day period, you might end up overspending in the pursuit of a reward. This makes credit card churning extremely ill-advised, and could even land you in high-interest debt the first time you apply. You’ll also need to determine if your credit score can weather any negatives from a hard inquiry or lowering your average account age. This is particularly important if you’re considering making any large purchases soon, such as buying a house. Plus, some cards with better rewards have annual fees, so the benefits need to outweigh that annual cost.
Strategy #2: Maximizing Credit Card Rewards with One Great Card
If you’re unable to manage multiple cards, whether organizationally or financially, maximizing your rewards may mean minimizing the number of cards you have. Rather than trying to manage multiple specialized cards, look for a well-rounded card with good rewards that fits in with the way you spend. You could consider finding a card that gives you better rewards for spending at places you frequently visit, like a gas station or the grocery store. Or you could find a credit card with strong, universal cash back rewards, which lets you choose how you spend your rewards. Just remember, the same rules still apply, like paying off your balance each month and not overspending to meet a signup bonus.
Regardless of which strategy you ultimately decide to use, it’s important that you make the right decision for you and your finances, not the rewards. So be sure to consider how maximizing your rewards will affect your credit score, future purchase power, and organizational sanity.