An uncluttered living room is admirable.
An uncluttered wallet, however, might not be.
While one credit card means only one bill, only one company to deal with, and only one set of rewards to memorize, it also has its downsides.
According to John Ulzheimer, credit expert at CreditSesame.com, there are four main problems with having a single card:
1. It might not be accepted everywhere. “First off, if you have one card and come across a retailer that doesn’t accept that type of card — not everyone accepts Discover or American Express, for instance — you run the risk of not being able to use it,” says Ulzheimer.
2. You’re subject to the company’s whims. “What if your card issuer decides to lower your credit limit, increase your interest rate, or implement an annual fee?” he asks. “You can either live with it, or you’ll have to go out and open a brand new card, which is something you don’t want to do regularly.”
3. You don’t have a safety net. What if your card is somehow compromised? Not only will you have to wait to get a new one, but Ulzheimer notes you may have charges that are auto-billed or be in a situation where you need a card immediately. “You’re putting yourself at risk without having a backup,” he says.
4. It can damage your credit score. This is thanks to something called your credit utilization ratio — that is, how much of your available credit you’re actually using. “That percentage is very, very influential in your credit score,” explains Ulzheimer. “People say that you’re in good shape if you keep your utilization within 50% of your available credit, or 30%, but really, it should be below 10%.”
Available credit counts all the cards you have: If you have one card with an $US8,000 limit and one with a $US6,000 limit, your total available credit is $US14,000, even if you only spend $US1,000 a month. With a single card, you have no unused credit cushioning the impact of your spending. “If you have one card with a $US10,000 limit, and you have to buy a new transmission for your car for $US5,000, then you have no other card helping the utilization stay lower,” says Ulzheimer. “If you have several cards, your credit utilization ratio won’t spike.”
A responsible credit user, he says, doesn’t need to be anxious about having multiple cards. “Credit cards are only problematic if you let them be.”
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