Ask Stacy: Is It Time to Change Credit Cards?

I recently got this question regarding credit cards. Actually, it’s a statement followed by a question. The statement: I hate my credit cards. The question: Should I close these accounts and get more?

Dear Stacy:
I’m a 21 year old with decent credit. I make good money in management, pay my bills on time, keep my balances on my credit cards low, and pay them off every month. My problem is I hate my credit card accounts. When I opened them I was 18, I’ve been late on a payment once with each card (I only have two credit cards) right after I opened them after losing my job. Because I had no credit when I opened them, I took what I could get. I’m not allowed, apparently, to request lower interest rates (which isn’t too much of an issue) OR to ask for them to raise my credit limits. Both cards have the same $300 credit limits I started off at three years ago. I also have a car loan that’s in excellent standing since day one over a year and a half ago. Should I open another credit card to lower my credit utilization percent? Should I close one of these accounts after opening a new card? What’s a decent number of accounts to have open? I’ve always been afraid to have more than two cards or close any cards but I’m to the point where I feel I should make a move. Thank you in advance for your advice!
Regards,
Olivia

Here’s your answer, Olivia!

There’s no magic number of credit card accounts. You should have more than one, not too many, and none you don’t like.

Why you should have more than one

There are several reasons why you should have more than one credit card, assuming you successfully manage them…

• Backup: If there’s a problem with one card – for example, if you temporarily misplace it – you’ve got another. This is particularly handy when you travel, or if you’re someone like me who constantly temporarily misplaces everything from sunglasses to car keys at every opportunity. It can also come in handy if a bank suddenly decides to close one of your credit card accounts, something that’s happened to many people.
• Extra credit: Having an additional card allows more control of your utilization, or debt-to-limit, ratio. This refers to the amount of credit you have outstanding relative to your credit limits, something that’s a major component of your credit score. As I said in 3 Tips to Raise Your Credit Score Fast, you want to keep your utilization ratio below 30 percent. So if your credit limit is $300 on one card, you don’t want to owe more than $90 on that card. While not having any balance is the goal, it’s better to owe $90 on two cards with $300 limits than $180 on one. (To learn more about what comprises your credit score, visit this page of credit score creator FICO’s website.)
• Perks: I have two credit cards. The first gets me a 5-percent rebate on gas purchases, the other earns frequent flier miles. So depending on what I’m buying and how much I’m spending, I pick my plastic accordingly.
• Business vs. pleasure: If you buy stuff for business use, it’s useful for bookkeeping to keep a card exclusively for that purpose. That way, at the end of the year you’ve got all your tax-deductible purchases in one place.
• Credit score: While it may seem that having multiple cards might scare lenders, having several accounts makes you look better, as long as they’re all paid on time. Since the length of your credit history also impacts your score, it also makes sense to maintain older accounts.

Why you shouldn’t have too many

• It’s easy to get in over your head: If you can’t seem to keep your bills paid on time, even one credit card is too many. Other than obvious problems like bankruptcy, late payments will destroy your credit score faster than anything else.
• They’re a pain: I’m a firm believer in keeping it simple. The more you have of anything – including credit cards – the more complicated your life. The fewer envelopes you open, statements you reconcile, and cards you have to keep track of, the better.

Why you shouldn’t have any you don’t like

Perhaps because the process of getting credit cards and loans requires an application, some people act as if they’ve won something when they’re granted a loan. They wouldn’t dare attempting to negotiate better rates, question the terms, or otherwise act like a discriminating consumer.

If you shop in a store that has shoddy merchandise or bad service, you’d leave. The same thing applies to banks: Don’t do business with one that ignores your needs.

The bottom line

Here’s what I’d do, Olivia: Providing you can safely manage it, apply for a better card with a higher limit, lower rates, and/or better perks. (Use our credit card search to find it.)

Then pay off your old cards, throw them in a drawer, and stop using them. Since those accounts will remain open, your utilization ratio will drop, which should improve your credit score. But most important, you’ll hopefully be dealing with a company that provides more responsive customer service.

Got more money questions? Browse lots more Ask Stacy answers here.