If your mailbox is stuffed full of credit card offers, you may be contemplating opening one of them up. After sifting through all the junk credit offers, you might actually find a diamond in the rough. Because of the economy, credit card issuers are going to town when it comes to credit card marketing and advertising, and our mailboxes, trash cans, and recycle bins are feeling the weight. If you’re not careful, you could end up getting a paper cut, or worse signing up for a credit card that hurts you.
If you are looking to add another card to your wallet, make sure you do your research, because if not, you’re credit score could go spiral down the drain. Right now is actually a very good time to apply for a credit card, as the Federal Reserve has locked in super-low interest rates until 2013 that affect the credit card industry. The low interest rates also apply to home mortgages.
True, the amount of open credit cards is calculated into your credit score. But opening too many credit cards can be bad for your credit health. On the other hand, having too little credit can also stop you from getting the car, home, apartment or even job that you want. People ask all the time, ‘what is the perfect number of credit cards to have?’, and there is no real concrete answer to that. The number of open credit cards you should have is dependent on you, because each person and situation is different.
The three major credit card reporting agencies-Trans Union, Experian and Equifax, all factor in the amount of available credit that you have versus the amount of credit used. The smaller the ratio, the better it is for your credit score.
For example, if you have a credit card with a $10,000 spending limit and at the time of your last statement your balance was $2,000. Then you would have a 20 percent ratio of debt used. Now, imagine that you have two credit cards, both with a $10,000 limit. That means that you now have $20,000 in available credit, and if you still owe the same $2,000, your debt used ratio will decrease to 10 percent.
Having open credit cards can be helpful if you can refrain for acquiring excess debt. For some people who lack discipline, one credit card can be too much. For others, 15 may not be enough. Debt can be acquired on any credit card. The only way to avoid debt is dedicated commitment to on-time bill and loan payments.
Each scenario is different, but for the average consumer three to four credit cards should be sufficient. Every consumer should have a few basic cards. Every consumer should have a personal rewards card, that gives them cash-back or redeemable points to their favorite store or general rotating categories such gas, grocery or restaurant purchases. Consumers should also have a business card that they use solely for business dinners, trips, travels and other expenses. The third card every consumer should have is an emergency credit card. An emergency credit card usually has a high spending limit and low-interest rate. These cards are good if you have an unexpected medical bill, car emergency, or large-appliance purchase. Put purchases on this card that you can’t afford to pay off in one fee schedule. The last card that every consumer should have is a travelling credit card. This type of credit card should switch borders with ease, and not charge any foreign transaction fees. Foreign transaction fees can be up to 3% of each purchase.
The key to these cards is paying the balances on time and refraining from overspending. If you follow these rules on all three to four cards, your credit score can increase in 12 to 24 months. So, don’t ignore all those credit card offers piling up in your mailbox, there might actually be something worth wild in there.
Here is one of our favorite credit card: