Credit cards make buying quick and easy. Earn airline miles or rewards for spending money! Apply for a credit card and get money off your purchase instantly! But whipping out a credit card to pay for impulse purchases or to make up income shortfalls can get you into a world of trouble.
In 2018, the average US household had $6,929 in credit card debt. If you live in Alaska, the average resident has an average of $14,000 of credit card debt – the highest in the US. The average American has 2.35 cards, some open and some closed but still factored into their credit report.
With those positives and negatives in mind, do you really need a credit card and if so, how many credit cards should you have?
Do You Really Need A Credit Card?
The answer to “do you really need a credit card” is maybe. There are great reasons to have a credit card and great reasons to avoid credit cards. It depends on you and how responsible you are with that tempting piece of instant cash in your pocket.
Positive effects include that responsible use can help build credit. Credit cards are revolving credit, which means the account stays open, unlike a car loan that has a set end date. You want some revolving debt to show that you use your credit wisely and pay on time. Lenders will look at your credit utilization ratio to see if you are a good risk. Credit utilization is how much of your available credit you are using each month. The lower your credit utilization ratio, the better.
Late payments and/or high balances have negative effects on your credit rating. So, the answer is if you will be responsible, a credit card is a great idea.
Why Should I Have Credit Cards?
Hotels and airlines, to name two businesses, may insist that you pay with a credit card. Online purchases are easier with a credit card. They can be very convenient in an emergency.
If you are applying for your first credit card or routinely apply for every card that you are offered, there are a few things you need to take into consideration.
Every “hard inquiry” that a lender makes negatively affects your credit rating. A hard inquiry is a request for your credit report. Each new credit account will temporarily bring down your credit score. Lenders like to have older accounts and each new credit card (or loan) brings down the age of your report.
How Many Credit Cards Should You have?
How many credit cards should you have? Most experts recommend two from different networks (Visa, Mastercard, American Express or Discover). These two should offer a different type of rewards (for instance, airline, general purchases, cash back). Some stores (Costco) will only take one network (Visa). If you travel internationally, some networks (American Express and Discover) are not as widely recognized.
Is it bad to have a lot of credit cards? It depends on you. If you are using your credit cards wisely, a drawer full of credit cards may not be bad. However, if you max out one credit card after another, a new one won’t help you get out of debt.
Some people are able to use balance transfer credit cards to help them lower their interest rate. These cards often come with balance transfer fees and startlingly
Some credit cards come with incredible sign-up bonuses. These cards often come with annual fees that offset bonuses. Make certain you understand what you are getting “free” and what it costs.
What Credit Card Should I Get?
If you have no credit history or bad credit, start with a secured credit card. These have a limit secured by money held in escrow. As you use and pay off the card each month, you improve your history. You are also building good habits.
Once you have that card and your behavior under control, you can add a second card. Look for one that has rewards that you will use and don’t expire. Consider an airline rewards card and a cash-back card.
Whatever you do, pay off your monthly balance and make all your payments on-time.
READ THE FINE PRINT and UNDERSTAND WHAT YOU ARE GETTING INTO!!!
For more information, talk with one of our debt specialists today.