Ben Todd | Jun 2, 2017 | 1
Mastering the Signup Bonus: How Many Credit Cards are Too Many
Yes, it is true that there are people who sign up for numerous different credit cards so they may earn a bunch of rewards and bonuses. Frankly–I cannot recommend that you do it too. You need a clinical, logical and almost robotic control over your financial trigger finger. It is very easy to get into worlds of debt and ruin your credit rating with credit card debt.
When you read about people who have seven or more credit card cards, you have to imagine that at some point that person had a brilliant credit rating that he or she has probably ran into the ground–and you would probably be right. Seven or more credit cards is probably too many.
The seven or more cards that the person has didn’t appear overnight. The cardholder probably had to apply for the cards over a series of months and years.
A few new enquiries about credit are not bad for your credit reputation, but too many enquiries and too many applications will start to hurt your credit rating.
Soft Search And Hard Search
Since credit information is so freely and easily available these days, it is possible for many companies to run soft searches. You see such things when you use comparison sites for loans, credit cards and insurance.
The company takes an overview of your credit rating and history without doing a detailed search. A soft search doesn’t appear on your credit history and therefore doesn’t affect your credit rating. A hard search, which is a detailed search, will show up on your credit history, and more than two credit card searches per six months may cause your credit rating to go down.
When Do You Receive A Hard Search?
If you are hunting for credit cards, then you receive a hard search when the credit card company runs a detailed search on your credit history. This is done after you have applied for the card and agreed to a credit search. It doesn’t happen after a simple inquiry or comparison search.
During the application process, they will ask you if they may run a credit search on you. They will say that if you agree, you should click to continue onwards. They may also have a tick box that is already checked off.
Running soft searches, such as getting ratings and running comparisons will not affect your credit rating. Just make sure that if you are on a credit card company’s website that the rate-search you are running is not a credit card application.
Once you have decided to get a credit card from the credit card company, you will have to complete an application. You cannot get a new credit card from a new credit card company without them running a hard search.
Are You Limited To Two Credit Cards Per Six Months?
If you do not want hard searches to affect your credit rating, then you may only apply for two credit cards every six months. Again, that is only if you do not want hard searches to affect your credit rating.
If you apply for two credit cards, then they will both run hard searches. Now, let’s assume you are approved and you receive your credit cards. If you apply for another, then whether you get it or not, it will negatively affect your credit rating. If you were to wait over six months, then you could apply for another two credit cards without the hard searches affecting your credit rating.
Remember, we are only talking about how hard searches (detailed searches) affect your credit rating here. There are other factors that will affect your credit rating if you keep applying for numerous credit cards.
Other Card Issuers Will See That You Have Numerous Cards
If you apply for two credit cards, and then six months later you apply for two more, and you keep doing this over and over again, then hard searches will not hurt you, but your credit history will become very interesting reading to future credit card issuers.
The credit card issuers will start to wonder why you keep applying for so many credit cards and why you have so many active credit cards. They may look at your credit history, they may look at your credit rating, and they may decide that you have too many credit cards. This may lead to them concluding that you shouldn’t have their card.
The Average Age Of Your Credit Will Go Down
How the average age of your credit affects credit cards is a little different to how it affects other credit types. For example, having a loan for a long time is not a great thing, even if you keep up your payments. Having an overdraft for a long time is a good thing if you keep using it and going back into credit from time to time. How your credit history works with credit cards is different from how it works with short-term loans, long-term loans and overdrafts.
If you have one credit card for a long time, such as for six years, then you are considered more credible than a person who has had the same card for just five years.
If you get a credit card and keep it six years, and then you get another credit card and you have it three years before getting a third credit card, then the average age of your credit keeps going down. At this point, the person with just one card that is five years old would be more credible than you, even though one of your cards is now over nine years old. The age of your credit is averaged between all three of your cards.
In short, the more credit cards you get, the lower the average age of your credit becomes. If you had one card that was ten years old and one that was five years old, then the average age of your credit is 7.5 years.
More Cards May Mean More Credit Utilization
If you use your credit cards, then you get into debt. The more debt you have, then the higher your ratio of utilization is. More cards may mean more debt, which means your ratio between available credit and debt is affected, and more debt means a poorer credit rating.
Having more cards gives you more opportunity to use more credit. There is a greater temptation to use the money you have in your credit cards, which leads to debt that you cannot escape.
You may use your credit cards so much that you cannot repay the entire balance before each billing cycle. This leads to a poorer credit rating, and it also leads to interest charges. In addition, if your credit cards have fees, then you are increasing the amount of credit card fees you pay every month/year by applying for and getting more credit cards.
To Recap On The Negative Effects Of Numerous Cards
Before we cover the positive side of having numerous credit cards in order to get their bonuses, let’s remember the negative sides.
[–] Credit card companies may refuse to give you their card if they see that you already have numerous credit cards.
[–] More than two hard searches on your credit history per six months will damage your credit rating.
[–] The more cards you get, the lower the average age of your credit becomes.
[–] Using your cards may increase your credit utilization, which may damage your credit rating.
[–] More cards mean more opportunity to get into debt that you cannot get out of.
[–] More cards may mean more monthly or yearly fees, which adds to your outgoings, which makes you less credible when you apply.
Getting More Credit Cards That You Do Not Use May Be Good
Remember the credit card utilization ratio from earlier? If you get more credit cards, but you do not use credit they offer, then your card utilization ratio goes down.
Your ratio of debt to available credit will shift in your favor. If you do not use the other cards, then your credit utilization looks better and your credit rating improves.
Manage Your Cards Well To Prove You Can Handle Them
If you have numerous credit cards and you handle them very well, it may have a very good effect on your credit rating. It may sound nutty using a bunch of different credit cards rather than just one, but if you do, you may improve your credit rating, and since you are only applying for credit cards for their bonuses, then an improved credit rating is an added bonus.
It is not that difficult to use numerous cards. For example, if you are paid $1500 per month in wages, you could use:
Card A – $600 rent
Card B – $280 food
Card C – $110 gas
Card D – $270 online purchases
When you receive your wages at the end of the month, you pay off all four cards in full, and your credit rating looks better and better. What is more interesting is the fact that some cards reward certain types of shopping.
For example, some credit cards give cash back if you shop on certain websites on the Internet (Card D). Others offer ongoing rewards for spending your money on gas (Card C) or in grocery stores (Card B). Others cards reward you if you spend higher amounts every month or every three months (Card A).
As you can see, not only will using different cards help you earn numerous ongoing rewards, it may also help your credit rating so long as you pay off all your credit card balances before the end of your next billing cycle, which is usually monthly.
Conclusion – Sign Up Bonuses And Ongoing Rewards
Now that you understand how applying for credit cards work, you should be reminded that the biggest factors that affect your credit rating are your level of debt and your payment history. Your payment history shows how well you manage your debt and if you clear your balances and your level of debt gives an indication as to your financial competency.
How many cards are too many? One card is too many if you cannot handle it and you cannot clear the balance before the end of each payment cycle (month). Only apply for new credit cards if you are sure you can handle and manage them. Credit card debt is the hardest to get out of, and it is not worth the risk if there is even a tiny chance you will sink into debt.
If you are going to chase signup bonuses and ongoing rewards, then plan your strategy well ahead. Decide when you will apply for each, how often you will use the card, when and how you will use the card, and when you intend to cancel the card. Make a plan and apply what you have learned here, and you will maximize your bonus and reward potential while taking fewer risks.