Is 25 Credit Cards Too Many?
A big topic in the personal finance blogging world is often credit cards vs. debit cards. Another, somewhat related topic is how many credit cards should a person have? This is not a one-answer-fits-all sort of question, but I feel pretty certain that most people would agree that 25 credit cards is a bit much.
Meet Pete DArruda, not only does he have 25 credit cards with a total available credit limit of $300,000, but hes proud of it!
The crazy thing is hes a personal finance consultant!
Why would anyone, much less a finance consult, think so many credit cards is a good thing? Well, its about the almighty credit score. See, one of the major factors in determining your credit score is whats known as your debt-to-available-credit ratio (or utilization rate). This is simply a ratio of how much you currently owe to your total available credit. In DArrudas case, his total available is a mighty $300,000.
So you would expect his debt to available credit ratio to be quite low, and his score to be quite high since he never carries a balance from one month to the next. In fact, he does boast of a 810-815 FICO score.
He also claims to have piles and piles of rewards in the form of cash back, airline miles, freebies and more.
But heres the problem: You can get a very good credit score and low utilization rate with far less than 25 credit cards. This is just extreme.
Most finance experts recommend keeping your debt to available credit ratio below 30%. This means that DArruda has to keep the total of his current balance to under $90,000 to get the maximum benefit to his credit score. $90,000! Most people with $90,000 in credit card balances is likely to have bigger problems than a less than perfect credit score. This is just overkill.
You can achieve the same benefit by having one or two credit cards, and charging less that 30% on them. If thats less than you spend per month, then use cash for the difference. (Here are 5 more ways to improve your credit score)
Besides having far too much available credit, hes also opening himself up to 25 different potential points of identity theft.
And I for one wouldnt want to have to keep track of all those accounts, various balances and rewards programs! And all for a high credit score which may not be all that important anyway.
I will give him credit for having self control. How many people in his situation would simply find themselves six figures in debt?
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- Tips For Credit Card Consolidation
- The Basics of Debt Equity
- How to Reduce Credit Card Debt Fast
- Negotiation may help lower your credit card payments
