How many credit cards can you have?
Credit cards can be handy to manage your finances, but is it a good idea to have more than one and will it damage your credit rating?
Key takeaways
Be aware that more credit may encourage excessive spending and lenders may view high limits as financial risk
Credit cards come in various types, each serving different purposes
Frequent missed payments or maxed-out limits may harm your credit score
When it comes to managing your finances, credit cards can be a double-edged sword. On one hand, they offer convenience and the potential to build a solid credit history; on the other, they can be a gateway to debt if not used responsibly. There's no definitive cap on how many credit cards one can own, and for some, having multiple cards is a strategic financial move. The key is to use them wisely to maintain or even enhance your credit rating, while avoiding the pitfalls that can lead to debt and damage your creditworthiness.
What to consider before applying for multiple credit cards
Before you decide to apply for additional credit cards, it's crucial to consider the implications. While having more than one card can amplify the benefits of financial management and credit score improvement, it also demands a higher level of financial discipline. The increase in available credit means you have more to manage and more potential to fall into debt if you're not careful. If you're already finding it challenging to stay on top of the payments for one credit card, it may be wise to reconsider applying for another. However, if you're able to make payments on time consistently and are confident that more credit won't tempt you to overspend, then having multiple credit cards could be advantageous. Each card should have a purpose and be used responsibly to avoid the risk of racking up more debt. It's also a good idea to set up direct debits for your payments to ensure you never miss a payment, and to make sure there are sufficient funds in your account to cover the payments.
What are the pros and cons of having more than one credit card?
The decision to hold multiple credit cards comes with its own set of advantages and disadvantages. Let's delve into what these are.
Pros of having more than one credit card
Strengthen your credit score: When used responsibly, multiple credit cards can demonstrate to lenders that you're creditworthy, potentially leading to better loan terms in the future.
Save money: If you have debt on a high-interest card, transferring the balance to a card with 0% interest can save you money on interest payments.
Convenient money management: Using different cards for different types of expenses can simplify budgeting and tracking of your finances.
Extra funds: Having more than one card increases your total available credit, which can be helpful for unexpected expenses.
Consumer protection: Credit card purchases also come with an added layer of protection. Purchases between £100 and £30,000 are safeguarded under Section 75 of the Consumer Credit Act, ensuring you get your money back if there's an issue with your purchase.
Cards for different purposes: Not all credit cards are created equal. There are different types of credit cards, each designed for specific uses, such as travel or shopping.
Cons of multiple credit cards
Hard to keep track of different payments: Juggling several cards can complicate financial management, leading to missed payments and extra fees.
Temptation to spend more: With more available credit, there's a greater risk of overspending, which can result in significant debt and interest.
Could affect your ability to get credit: Lenders may view holding multiple cards with high limits as a sign of financial risk. They might look at the total available credit you have, not just the money you’ve borrowed, and this could be viewed negatively in a new credit application. Also, having several rejected credit card applications can damage your credit rating as it may appear as though you are in desperate need of money.
What are the different types of credit cards?
Credit cards come in various forms to cater to different financial needs and goals:
Credit builder cards: Credit builder cards are tailored for individuals with minimal or no credit history, helping to establish a credit score.
Balance transfer credit card: A balance transfer card allows you to move existing debt to a card with a lower interest rate, which can be as low as 0%.
Rewards credit card: With rewards credit cards, your spending earns you rewards such as cashback, air miles, or points.
Purchase credit card: Purchase credit cards are meant for shopping, enabling you to spread out the cost of your purchases.
Travel credit card: Travel credit cards are designed for use abroad and typically do not incur foreign transaction fees.
Balance transfer and purchase credit card: Balance transfer and purchase cards offer the flexibility to transfer debt and also continue spending on the card.
Does having multiple credit cards harm your credit score?
The impact of multiple credit cards on your credit score varies depending on how you manage them. If you're diligent about making payments and keeping your credit utilisation low, multiple cards can actually be beneficial. They can show lenders that you're capable of handling credit well. However, if you're frequently missing payments or maxing out your credit limits, it could have a negative effect on your credit score. Additionally, having several rejected credit card applications can also damage your credit rating. Lenders may also consider your debt utilisation ratio, which is how much of your available credit you are using. Using a smaller portion of your credit limit across multiple cards can be favourable in the eyes of banks.
How do I cancel a credit card?
If you decide that you no longer need a credit card, here are the steps you should follow to cancel it:
Pay off your balance: Ensure that any remaining debt on the card is cleared.
Claim any rewards: Redeem any accumulated loyalty points before closing the account.
Cancel regular payments: Make sure you stop any ongoing subscriptions or direct debits linked to the card.
Contact your credit card provider: Inform them of your decision through phone, online banking, or by post.
Send a follow-up email: It's good practice to confirm the cancellation in writing with an email or letter.
Check your credit report: After some time, verify that the account has been closed by checking your credit report.
Cut up your credit card: Destroy the card properly to prevent any fraudulent use. Properly disposing of a cancelled credit card is essential to prevent identity theft or fraud.
How to use a balance transfer credit card
A balance transfer credit card can be a strategic tool for consolidating debt and reducing interest payments. These cards offer a limited-time opportunity to transfer existing debt, often with an interest-free period. This effectively buys you time: you can pay off the outstanding balance over a number of months without accruing more interest. Some balance transfer cards offer interest-free periods of more than two years, which can be a significant financial relief.
Other useful guides
MoneySuperMarket provides an array of guides that can help you understand the intricacies of credit cards, such as:
Compare credit cards with MoneySuperMarket
To find the best credit card deal for your needs, MoneySuperMarket offers a comparison service that doesn't impact your credit score. It provides a clear picture of the deals you're likely to be approved for, helping you make an informed decision. You will also see your chances of being accepted for each card deal, including pre-approval status.
MoneySuperMarket is a credit broker – this means we’ll show you products offered by lenders. We never take a fee from customers for this broking service. Instead, we are usually paid a fee by the lenders – though the size of that payment doesn’t affect how we show products to customers.
