6 Secrets to Managing Multiple Credit Cards
- Maryalene LaPonsie Money Rates Columnist
- 2013 13 Nov
For Louis DeNicola, it started in college with a student Visa credit card. That was followed by two store cards.
Then came the realization that credit card rewards points could hold the key to free travel. One free flight to Europe and a couple free hotel stays later, the New York City resident was hooked. Today, DeNicola has nearly a dozen cards and is known as the "credit card guy" in his circle of friends.
Half of the U.S. population has at least two credit cards, according to a report by credit bureau Experian.
Eric Coombs, like DeNicola, started with a student card but soon received other offers. Coombs eventually found himself carrying eight cards, for personal accounts as well as business cards for his company, ENC Valet in Sacramento, Calif.
"From a business standpoint, it is nice to have all business expenses on one card," he says.
Despite their different paths to owning multiple credit cards, both DeNicola and Coombs have developed strategies to keep their cards -- and credit -- in good shape.
1. Avoid carrying a balance
First, neither DeNicola nor Coombs carry a balance on any of their credit cards. As DeNicola notes, rewards cards generally have higher interest rates. Remember that any interest you pay will offset and may even negate the value of rewards you earn with a card.
2. Pay your balance on time
Along with paying off the balance each month, you need to be sure you are making your monthly payments before the due date. An automatic, online bill-pay system can be ideal for this purpose, says DeNicola.
Should you miss a payment, DeNicola suggests calling the card issuer right away and asking for the fee to be waived. If it is your first late payment or a new card, the company is often happy to oblige.
3. Skip cards with a cost
Both men avoid paying annual fees for their cards.
"I don't have any credit cards that cost money," says Coombs.
DeNicola does have cards with annual fees but he places a sticker on the front of each card with the amount of the annual fee and when it is charged. That sticker serves as a reminder to call the card issuer a month before the fee is due and ask to have the fee waived. If the company declines, he downgrades his card to one without a fee.
4. Pick the right card for each purchase
Perhaps the most challenging part of having multiple credit cards is maximizing rewards points. When DeNicola first got his cards, he placed stickers on the front with a reminder of each card's rewards.
Mobile apps such as Reward Summit, Glyph and Wallaby offer a more high-tech way to achieve the same goal, enabling you to keep track of which of your cards offers the best rewards for each purchase.
It's also important to pay attention to each card's features, which might include fraud protection, extended warranties or travel insurance. These features can come in handy when making major purchases.
5. Keep tabs on purchases
Speaking of purchases, knowing where you spend your money is essential to paying off your balance each month.
"When you stop paying attention, (spending) can get out of control quickly," says Mary Ann Marriott, a financial counselor for Haley & Associates in Nova Scotia.
Coombs keeps an eye on each card's paper statement while DeNicola uses Quicken to monitor his card usage.
DeNicola also notes that many sign-on bonus offers for rewards credit cards have purchase requirements. Careful tracking is important to ensure you have made the correct number of transactions or spent the proper amount to gain the bonus.
6. Consider the impact to your credit score
Finally, don't overlook the effect of multiple credit cards on your credit score. Your FICO credit score is based on the following categories:
- Payment history: 35 percent
- Amount owed: 30 percent
- Length of credit history: 15 percent
- New credit: 10 percent
- Types of credit: 10 percent
Length of credit history is one reason why Coombs hasn't closed any accounts despite the fact he tends to only use half his cards on a regular basis. In addition, with his credit score only one point off perfect, he is reluctant to apply for new cards since credit checks tend to cause a temporary decline in scores.
To minimize that decline when opening new accounts, DeNicola uses an "app-o-rama" strategy that and involves applying for multiple cards at once.
A final word of warning
Using multiple credit cards can be an effective way to rack up rewards points and earn free travel, cash back and other perks. However, it may not be a sound money strategy for everyone.
"The biggest con is definitely temptation," says Marriott. "We get the cards with the best of intentions and then life happens."
And life happening may mean excessive spending and missed payments which can lead to interest and fees you didn't plan on paying. Certainly, juggling multiple credit cards is not for the disorganized or for those easily convinced they need that shiny new something.
"Self-discipline and available credit go hand in hand," says Marriott.
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Publication date: November 13, 2013