It might be tempting to collect credit cards. But too many cards will cost you hefty annual fees and could hurt your credit.
You’re making bank and are ready to upgrade to a premium credit card. Well done. But why settle for just one luxury credit card? If you have multiple premium cards, you can access perks that different cards offer—think free hotel stays, first-class upgrades, and presale concert tickets. But before you apply for a dozen luxe cards, take a breath. Sometimes, multiple cards can hurt your credit and deplete your hard-earned bank account. Let’s work through the pros and cons of carrying multiple premium cards.
Is there such a thing as too many credit cards?
Sorry to say, but, yes, there can be too much of a good thing. If you have more than one premium card, you could be shelling out more than $1,000 per year, and it could be a drag on your finances and credit.
Premium credit cards come with benefits, but perks don’t come cheap. These cards have annual fees ranging from $300 to $750 per year. For instance, the Bank of America Premium Rewards Elite Credit Card costs $550 per year, while the Capital One Venture X Rewards charges $395 per year. To justify those annual fees, make sure you’re using the perks that come along with each card.
Credit utilization is the amount of your credit card balances compared to your available credit and is the second most important factor in determining credit scores (payment history is no. 1), according to Experian. Financial experts recommend keeping your credit utilization below 30 percent on each credit card. When you carry large balances on multiple credit cards, it increases your credit utilization rate, which adversely affects your credit score. It’s ok to use multiple credit cards (more on that later) but spread out your spending across your cards and avoid maxing out.
If you’re juggling multiple credit cards, it’s easy to miss a deadline or get behind in your payments. But don’t. One missed or late payment can lower your credit score, and it could stay on your credit report for up to seven years, according to Equifax. Don’t have so many cards that you lose track of deadlines or can’t afford to make on-time payments.
How the number of credit cards affects your credit score
Every time you open a new credit card, it impacts your credit score. Before you apply for another premium card (we know, 100,000 hotel bonus points are really tempting), consider the potential impacts.
How it helps your credit score
Premium cards aren’t just the best credit card for wealthy individuals, they’re great for busy professionals, intrepid travelers and anyone who likes the finer things. When you carry multiple premium cards, it can boost your credit score because the credit agencies reward consumers who use their credit responsibly. You’ll need to keep your credit utilization low and make regular, on-time payments. Also, the longer you’ve had credit card accounts open and are in good standing, it adds to your credit score.
How it hurts your credit score
Yes, there can be too much of a good thing. If you make late payments or miss payments, carry large balances, or push your credit to the max, your credit score can take a hit. Also, if you apply for a lot of premium credit cards, that can have an adverse effect.
Here’s why: Every time you apply for a credit card, the card company requests a hard check on your credit report and that lowers your score. That effect is usually small and goes away after two years, but to keep your score steady, you shouldn’t have too many hard pulls in close succession. Finally, when you close credit cards, it can lower your credit score because your score benefits from a long-standing credit history.
How to get rid of credit card annual fees without hurting your credit
Premium cards are often considered credit cards for the wealthy because not everyone can—or is willing—to pay the annual fees. After the first year, some companies may reduce or waive annual fees as a reward for on-time payments, payment history, and the length of your account. Just ask nicely.
Frequently asked questions about applying for new cards
With their generous introductory offers, premium credit cards can be very tempting. But before you go out and apply for multiple cards, let’s talk about a few issues:
What’s the Chase 5/24 rule about?
Chase’s unofficial policy (you won’t find details in any printed material or online) is it won’t approve a credit card application if you’ve opened five or more credit cards across all banks in the last 24 months. This practice started in 2015 and it applies to most of Chase’s popular credit cards. Even if you’re below the 5/24 limit, experts recommend you try to space your new card applications as far apart as possible.
What happens when I want to close a premium card?
If you’re not using a premium card or you’re tired of the annual fee, you may want to close the account. You’re under no obligation to keep those cards, but canceling a credit card can negatively impact your credit. The credit agencies reward consumers for having access to credit and closing accounts can weaken your standing. To offset the change in your available credit, if you close a premium card, open a new card without an annual fee and use it occasionally. Another idea is to keep that premium card and make one regular charge on it monthly. Of course, it might not be a good idea to get a Bank of America Premium Rewards Card for $550 per year just to charge your monthly Netflix subscription to it.
Is it wrong to churn credit cards?
Most premium credit cards come with juicy introductory offers, but there’s a catch: You don’t get the reward until you hit a minimum spending amount in a set period. Some card holders apply for multiple cards just to reap the rewards and then they cancel it, which is also known as churn. While churn isn’t illegal, the credit card companies frown on this behavior (hence Chase’s 5/24 rule), and they may deny your application. Also, when you close cards, your credit score can take a hit. So while churning may sound tempting, proceed with caution.
Do you really need all those cards?
We get it, premium cards can make you feel like a baller. But before you fill your wallet with another American Express Gold or Platinum card, think about how much you’ll use the benefits and if the annual fees are worth it. One or two premium cards might give you status without too much financial strain. So, when you hear, “What’s in your wallet?” (Are you a Samuel L. Jackson or Jennifer Garner fan?), make sure you have the cards you really need and be responsible with that plastic.