Can you have too much of a good thing? When it comes to credit cards, the answer is yes.
There are so many rewards credit cards out there with all kinds of perks. As such, it can be tempting to apply for card after card. After all, more cards mean more valuable sign-up bonuses. Plus, you'll have more bonus categories where you can earn extra rewards. And instead of settling for just one card's benefits, you can mix and match all your favorites.
Combining credit cards like this can be a smart strategy, but it isn't something you should jump into. Below are several ways that having too many credit cards can cost you money and make your life more difficult.
1. You have more monthly payments
Every time you get a new credit card, your monthly bills get more complicated. You'll have another payment to make with its own due date to remember. If you don't, you could face late payment fees, and even damage your credit if you go too long without making a payment.
To be fair, you can set up autopay for your credit cards to avoid potential late-payment issues. However, you'll still need to stay on top of your upcoming credit card payments and your bank account balance to avoid overdraft fees.
2. You could end up paying more annual fees
It's nice to have all kinds of useful credit card benefits, but these benefits come at a cost. The top credit cards with the most perks obviously charge annual fees, and they can range from about $75 to over $500.
An annual fee is worth it when you're getting more value than the card costs. That's more challenging when you have several cards with annual fees, though. You could reach the point where you're paying annual fees for cards you don't use that often.
3. There's a greater risk of credit card debt
As you open more credit cards, you'll have more available credit. Unfortunately, this is a responsibility that not everyone handles well. The fact that the average credit card balance was $5,897 in 2020 is evidence of that.
Ideally, you'll build smart spending habits and follow them no matter how many credit cards you open. But it's easy to fall into bad habits when you have enough credit to splurge to your heart's content.
4. It's harder to get approved for new credit
This is my biggest frustration, and it's unavoidable when you open many different credit cards: It starts getting harder to apply for new credit. Lenders see you as a greater risk if you have a high number of recent applications or new accounts.
Some credit card companies even have specific rules about this. The most well known is Chase's 5/24 rule. Simply put, Chase will usually deny any applicant who has already opened five or more credit cards within the last 24 months.
You could have an excellent credit score, no debt, and be a near-perfect applicant. It's still possible to get denied simply because of how many credit cards you've opened.
5. Your credit score won't improve
There's a common credit score myth that having too many credit cards is bad for your score. Although that's not true, there are two factors that can ding your credit score when you regularly open new cards.
- Credit accounts with a short history: The average age of your credit accounts has a moderate effect on your credit score. If you frequently get new cards, it lowers your average account age and hurts your credit.
- New credit inquiries: Credit applications trigger a hard credit inquiry. Each of these has a small negative impact on your credit, and multiple hard inquiries can add up to a bigger impact.
Neither of these is a huge issue, but they can keep your credit score stuck in neutral or even going backward.
To give a firsthand example, my credit score didn't change much when I applied for several credit cards per year. However, it went up over 30 points in a year when I didn't apply for any new cards.
6. It may take longer to catch credit card fraud
The more credit cards you have, the longer it takes to review the transactions for each one. If you don't check this regularly, it could take you longer to spot credit card fraud.
You still wouldn't be liable for too much -- federal law puts a limit of $50 on your liability for credit card fraud. Most credit card companies do even better and have zero-liability policies. But credit card fraud is still annoying to deal with, and it can be worse if it goes undetected.
Imagine somebody runs up a balance on one of your credit cards and raises your credit utilization ratio, which damages your credit score. You don't find out until you're in the process of applying for a mortgage. At that point, you would need to first sort out the mess with your credit card company to fix your credit score, and then get the mortgage after.
It's not always a bad idea to have several credit cards. I've done it myself, and you could save quite a bit of money. The key is to understand the potential drawbacks so you can avoid them.
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