10 Crucial Credit Questions — and the Answers

Wondering how many credit cards you should carry? We have answers to this and nine other burning questions.

Judging from our inbox, there seems to be a lot of credit confusion out there.

You’ve got questions: How many credit cards should you carry? When should Junior get his own card?

Luckily for you, we’ve got answers.

1. How many credit cards should I have?

Ah, this would be the $64,000 question. Some well-known financial gurus would tell you the answer is none. Meanwhile, other card experts say you can have a lot more. Brian Kelly, the “Points Guy,” says he has up to 20 active accounts open at any given time so he can rack up hotel and airline credits.

However, Adam Levin, founder of our partner site Credit.com, suggests a more middle-of-the-road approach. He suggests having two cards — a rewards credit card for everyday use and a low-interest card to be used for emergencies.

From our Solutions Center: Help with credit card debt

Why not have just one good all-purpose card? Mainly because you’ll want to earn rewards from your purchases, but airline, gas and cash-back cards tend to have higher interest rates. That’s fine as long as you’re paying off your balance each month.

But when the water heater says “No more” and your savings account says “Yeah, right,” you’ll want a low-interest credit card waiting in the wings. You don’t want to carry a balance on a high-interest rewards card.

2. Should I carry a balance?

Heck, no!

Unless you’re self-financing a purchase or dealing with an emergency situation, paying credit card interest is just plain dumb.

Some people believe you need to carry a balance for your credit score to benefit, but that’s not really the case. You can read this article to learn more about why no balance is needed to boost your score.

3. What exactly is my credit score and how is it calculated?

Speaking of credit scores, some people are a little hazy on what they are and how they are calculated.

While several different companies create credit scores, the one most likely to influence your access to credit and interest rates is your FICO score.

Your main FICO score runs from 300 to 850, and companies use it to decide how well you manage credit and how likely you are to pay them back after borrowing. The higher the score, the more trustworthy you appear to creditors.

The score is created and weighted with this information:

  • Payment history — 35 percent.
  • Amounts owed — 30 percent.
  • Length of credit history — 15 percent.
  • New credit — 10 percent.
  • Types of credit used — 10 percent.

FICO doesn’t say what constitutes a good or bad credit score. However, typically, if your score is below 600, you’re probably viewed as risky business. A score above 800 will generally get you the best interest rates and terms.

For more information, read our article on credit score fact and fiction.

4. How often should I check my credit score?

Levin suggests looking at your credit score frequently.

Some credit card companies and banks now provide credit scores free as part of their customers’ monthly statement.

If your bank or card isn’t providing scores for free, you may have to wait until either a creditor denies you or you pay FICO for the information.

Once you get a look at that magic number, you may want to take this advice on how to raise your score quickly.

5. I’m ready to ditch my debt. Do I pay off the card with higher interest or a higher balance first?

The answer to this question also rests largely on which financial guru you ask.

Some argue you should start with the smallest balance. Quickly paying off that account can give you the momentum needed to keep on a debt diet.

However, if you look at it from a purely financial standpoint, it is better to start with the highest-interest card. Paying off the high-interest card first usually saves the most money.

6. Should I co-sign a card for a friend or family member?

Absolutely not.

Co-signing for a card or loan puts you on the hook for the balance in the event a friend or family member stops paying. Or if the borrower makes late payments — which you may never know — it could also negatively affect your credit score.

You may protest: “But I know that wouldn’t happen. They are really good people!”

I’m sure they are, but sometimes even good people make poor money decisions. Or life takes a turn you didn’t expect. Rhonda knows all about that.

Bottom line: You shouldn’t co-sign unless you’re ready and able to assume the debt as your own in the event your co-signer — for whatever reason — can’t pay.

7. When should my child get her or his first credit card?

Probably not until he or she has a real job and some emergency savings.

Children must have their own money before they start using someone else’s cash, so a steady job is a must. A work-study gig in the campus cafeteria for three months doesn’t cut it either.

Emergency savings help ensure that the child doesn’t get sucked into using a credit card for every minor crisis or shopping whim. Students need to get into the habit of saving before they perfect the habit of spending.

Educate your children on smart credit habits, hope it sinks in and refuse to co-sign any applications for them.

8. Should I close the account on a credit card I no longer use?

If you are concerned about your credit score, Stacy Johnson suggests it may be best to keep your credit card account open.

You also may be interested to hear what FICO says on the subject: “We never recommend closing a credit card for the sole purpose of raising your FICO score.”

9. Is it ever smart to pay an annual fee?

For most people, the answer is no, although you may need to do a little math to figure out what’s best for you.

You see, there are plenty of great credit cards that are fee-free. That means typical cardholders probably shouldn’t be paying for the privilege of charging their purchases.

However, if you’re a heavy user, it may make sense to splurge on a card with a fee. A few years back, I interviewed a frequent flier who told me he happily paid somewhere in the ballpark of $400 annually for his premier airline card. It was money well-spent because it included a sky club membership valued at somewhere around $700 per year.

He would have bought that membership anyway, which meant he was saving money before he spent a single cent on the card.

Look at the rewards you earn versus the annual fee and see if the card pays off. Be realistic, though. Don’t calculate in the value of perks you’ll never use when deciding if the annual fee is worthwhile.

10. I made mistakes and destroyed my good credit. Should I get a credit card to rebuild it?


If you’ve ruined your credit, you need to do a little soul searching before filling out a credit card application.

Yes, using a card responsibly may help you improve your credit. At the same time, it could just dig you a deeper hole if having plastic makes you lose all spending self-discipline.

A secured credit card is one way to test the waters. Or there are other ways to rebuild credit without a card.

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  • Jcatz4

    I have 4 credit cards – 2 Discover cards, 1 CapitalOne MasterCard (used to be an HSBC MasterCard until CapitalOne bought it abt. 1 1/2 yrs. ago) and 1 Bank of America Visa. All are cash rewards cards and I DO NOT pay any fees to carry them. I pay my balances off each and every month. I don’t use either of the Discover Cards very much now because I’ve been receiving better cash back bonuses on the MasterCard and the Visa. Discover Card has recently started providing me with my FICO score for free. What I don’t understand is why my FICO score was 814 one month and then dropped to 794 the next month. That is a difference of 20 pts. and absolutely nothing has changed in my life. All bills are paid each and every month – I haven’t applied for or opened up any new credit cards since last Oct. My home has been paid off since April 2004 and my car was paid off in July 2007. I have recently received at least one of those pre-approved credit card applications that I didn’t request and I have no intention of applying for. I don’t know if that is why my score dropped 20 pts. or not. I can’t get my credit reports – for FREE – until Oct. 2014.

  • Jake

    I carry one Discover card, because it has good rewards, and then my Visa debit card in case some place doesn’t take Discover.

  • Lilolady

    As a point of fact, I recently had the same experience as previous respondent, Jcatz4. Reportedly, my Discover Card statement revealed a FICO score of 826 on 2/14/2014. The following month my Discover Card statement revealed a FICO score of 815 on 3/4/14. I was at a loss to understand the reduced status. I contacted Discover Card and was told that the score data had come from Transunion! I contacted Transunion and was told that was not so. I called Discover Card back and discussed the situation with someone who indicated they would get back in touch with me about the matter and that has not been done. My issue is with the fact that I am an 81 year old lady and have ample cash to pay for everything I purchase. I use credit cards for convenience and nothing more. I pay any and all credit card monthly statements and/or any other indebtedness when due in full upon receiving the statement if not on auto pay. I have no carried over outstanding balances on any account that I have. The only difference that I am aware of in my credit history is that I had contacted all three Credit Bureaus, i.e., Experian, Trans Union and Equifax in recent times just prior to this change in my FICO score and placed a freeze on all three so that no new credit accounts could be opened in my name. I am able to pay cash for any and all purchases including an automobile and there is far too much “identity theft” occurring, so I thought that prudent! So did that action lower my credit score????? I have no answers to date!

  • Danny Ramirez

    Conquest Credit & Debt Consulting 800 288 4833

  • http://ecofrugality.blogspot.com/ Amy Livingston

    You do not need to pay to check your credit score. All three credit bureaus will give you access to your VantageScore (a newer alternative to the FICO score) for free. Credit Sesame provides your Experian score, and Credit Karma provides your Equifax and Transunion scores (and the credit report info they’re based on). The VantageScore is not identical to the FICO score, but if your VantageScore is good, it’s overwhelmingly likely your FICO will be too.

  • Vince Ryder

    Best advice on credit I know of consists of two things. 1st) Pay interest only on things that increase in value (real estate), unless you have no other choice. 2nd) Use your credit card as much as you want to, getting rewards along the way, as long as you do one thing–for every dollar you spend on a card, put an identical amount aside for paying the bill. It’s that simple.

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