Why We “Need” So Many Credit Cards
May 7th, 2007 by Baz L
For years now, I’ve wondered. Why do people talk about having four (4), five (5), and sometimes seven (7) or more credit cards? They claim that each one has its purpose. I found that hard to believe. In my mind, you should only need one, and your choice should be simple enough: pick the card with the lowest interest rate. It all seems so simple in my mind. You may have two or three if your lowest rate card, doesn’t coincide with a proper available limit. But essentially, your choices should be limited, so why the hell should people need tons of credit cards? Now, I know better :).
Credit Score - Longest Open Account
Let’s start at the beginning. I remember when I was brand new to credit. I was told, pay your bills on time and it would help your credit. Well after an entire year or impeccable payments to SBC and TXU Energy, I still got denied for all the cards that I applied for. That includes a Sears card. Yes, I was denied a Sears card. I was dealing with the age old Catch-22 of credit. Can’t get new credit because you don’t have established credit. How the hell am I supposed to establish it if no one wants to give me a bloody department store card. A real Chicken Before The Egg dilema. Well, I’m sure you guys have read about all the hoopla you can do to get around this: Secure credit cards, taking out a loan from the bank against money you already have in there, and paying it back, etc, etc. Luckily, I didn’t have to go through all of that. Someone told me that Wells Fargo was giving credit cards if you sign up a checking account with them. I promptly rushed over and signed up. Got a nice lil’ dart board and a brand new Visa with a whooping $400 limit. This is where it all began. Of course, it’s a student card with a ridiculous 24% interest rate, but who cares, it’s just supposed to get me out the door.
Can’t Close It
Two years and a few cards later, I obviously can’t close this account. It would hurt my credit score if I do so, because this is my longest standing open account. Even though the interest rate is insane, I can’t close it. Now instead of lowering my interest rate, they’ve decided to increase my limit every few months. Last I remember I was up to $5,300 when I stopped checking. I have one automatic bill going to this card just to keep it active.
Lowest Interest Rate
After the blessings from Wells Fargo, I filled out one of those offers in the mail. Sounded like a good deal. I think it was an American Express, 8% APR, cash back, bill pay, etc. This I opened with MBNA, which is now Bank of America. I didn’t really use it much; it was American Express after all (and not accepted everyone I needed it), until one day a sales rep called me up and asked whether I was satisfied. After a 5 minute conversation, I was told that my new Visa card (on the same account, with the same terms and conditions) was on the way. After that, I was very satisfied.
Can’t Close It
Do I even need to explain this one? It’s my lowest APR card. Also the bill pay feature is nice and I do get a few cash back points, like 0.1%. Better than nothing I guess.
So after this, I figured. That’s it. I don’t need any more cards, why would I? Then came the gas prices.
Cash Back, Points, Rebates, Gas, etc
Gas prices are ridiculous everywhere. It’s no news to anyone. So, I decided that it would be a good idea to get a credit card with some good gas rebates or cash back. The first one I attempted was CITI card that gives 5% cash back on gas and grocery purchases. They told me to kiss off. A few months later, I tried an American Express (I figure grocery stores and gas stations don’t discriminate as much as online stores). They also told me to kiss off. Going down the list, Discover told me to kiss off, when I applied for their Open Road card. But finally, the fine people at Chase opened up their hearts to me with their rewards card that gets me 3% on gas and 1% on all other purchases. The only thing is that it’s not cash back, it’s rebates. The difference is cash back has to be accumulated to some predetermined amount, then you request it and they mail you a check. Rebate are lovely. You make a $100.00 gas charge, they debit you $3.00 right away. No I don’t have such huge gas purchases; just did that to make the math easier.
The interest rate is average I guess, 15%. But what do I care, I don’t plan on keeping a balance.
Can’t Close It
Gas prices are through the roof with no signs of coming down. I need all the help I can get. At the current gas prices, this drops my cost down by 8 cents a gallon. 1% on everything else also isn’t bad.
Credit Score - Total Available Limit
Another thing that affects your credit score is the percentage of available credit you have. It doesn’t really matter how many cards you have (I think). What would be ideal is if you can spread your balances (if you have) over all the cards evenly. In other words, it’s better to go half on two cards, than to max out one and close the other just because you’ve finished paying it off.
Now here you have to do a little bit of juggling and you need to understand what your goals are. If you’re looking to be out of debt ASAP, then you pay off the highest interest card first. If you’re wanting to increase your credit score, you even out your balances; this is going to cost you a bit more on interest, but again, you need to know what your goals are.
Reenter, the Wells Fargo Visa and Bank of America Visa, and Chase Master Card.
Can’t Close Them
That’s $5,300 + $4,500 + $3,500 - $1000 (average balance) = $12,300 of available credit.
Conclusion
So this is why. Now I understand. Now, we haven’t even catered for people whose gas cards don’t give them points on anything else so they need a completely different card for rewards. Each card has it’s place in your own little economical universe. But of course, there are rules that govern each universe. If you find yourself with huge balances on all cards, then this is defeating the purpose. Rebates and such should be considered a luxury, if you don’t plan on keeping a balance on any of these cards.
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