Credit card issuers are following the lead of retailers offering deals ahead of Black Friday. Both general-use and store-specific credit cards are now offering promotions that could reduce one's holiday expenses by up to $625, according to CardHub. But do you think you already own too many credit cards?
According to a recent Gallup survey, the average number of credit cards Americans own is three. Whether that number is too many, too few or just enough is really a question of how one uses and manages the accounts.
If you have the tendency to spend more than you have, you might need fewer than three credit cards or none at all, says Harrison Lazarus, a financial consultant and founder of Harrison Lazarus Advisors. On the other hand, if you spend well within your means, more credit cards could be good for you. "You will be able to access money when you need it, obtain fringe benefits like rebates and mileage, and improve your credit score," Lazarus says.
According to CardHub, the two best credit cards to consider for lowering your holiday spending tab are the Citi ThankYou Premier Card and the Chase Sapphire Preferred Card. Both offer valuable initial rewards.
The Citi ThankYou Premier Card has a 50,000-point initial bonus, worth $625 when redeemed for airfare or $500 in gift cards. There is no fee during the first year, but you will get charged $95 annually thereafter.
So, should you sign up for this and other cards to take advantage of the initial rewards, and then cancel all of them after the holidays or after the promotion ends? Beware of this strategy, warns Kimberly Howard, a certified financial planner and owner of KJH Financial Services.
If you own three credit cards and you sign up for three new ones, you will have six monthly statements to deal with each month. "Having too many credit cards can lead to the lack of time and focus to ensure proper credit card management," says Howard.
Every credit card will require a payment date and each one could be different. This payment juggling, Howard says, could lead to missed payments or late payments, which could lead to a decrease in your credit score.
The plan to close the new cards immediately after the holidays can also be dangerous. Each time you close a card, you will take a small hit on your credit score. If you must do this, Howard's advice is to allow a six-month interval so your credit score could recover before the next card is closed.
Several factors influence your credit score: previous payment performance, outstanding debt and the length of time the credit has been open. Inquiries and new accounts also affect your credit score. Every time you apply for a credit card, an inquiry is added to your report and your credit score goes down a little. "An inquiry is viewed unfavorably because it means you are shopping for credit," Lazarus says.
To find out if the number of credit cards you own is a reason for your low credit score, pull your credit report and look at the risk factors. If "too many revolving accounts" is listed as a risk factor, it might be a good idea to ignore new card offers.