Answers to 10 Key Questions About Credit Cards

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

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 official FICO score ranges from 300 to 850. This is usually the one companies use 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
  • Mix of credit types: 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. It’s easy to do, without paying. Here are many sources, including credit cards, banks, credit unions, financial counseling agencies and lenders, where you can get your official FICO score for free.

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, only because quickly paying off an account can give you the momentum needed to stick to your debt diet.

However, 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.

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Comments

  • 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

  • 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.

  • LagunaLady27

    I have three credit cards with very high credit limits, but zero balances. I use my Rewards card every place that will take it. I carry it and the other two when I travel. The non-rewards cards are for emergencies. I do, however, use them once or twice a year, just to keep them active.

  • Richard Johnson

    Re 1. How many credit cards should I have?: The best way to go in my view is available to

    those of use who pay in full monthly (which I recommend for everyone if it’s possible, to avoid paying those ridiculously high credit card interest charges). Have two cards, one for high dollar rewards for every purchase, and the other for super-high dollar rewards on selected purchases. For the first I use CITI’s Double Cash card, for 2% back per purchase, and for the other, Discover It, for 5% back all the time (or almost all the time), on a rotating selection of categories (restaurants, movies, department stores, etc.). You can vary this plan with a third card for more choice of super-high rewards, but since every new card will for a time lower one’s credit rating two are enough for me.

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