Are you like most Americans who carry between five and 10 credit cards? If so, why not consider using only the one or two which offer the greatest rewards? Doing so can simplify your life, help you keep your spending habits in line, keep your debt under control, improve your credit score and may give you a greater return on rewards points you can use for future purchases.
Here's why:
When you have lots of credit card options, it's easier to spend more and increase your debt. By spreading out expenses across many cards, the temptation to spend increases because it's harder to see the total amount being spent. The fewer cards you use, the easier it is to consolidate and track your spending.
Visa®, MasterCard®, American Express® and Discover® are accepted practically everywhere. Chances are, if you have any one of these cards you should be able to use it for most situations.
Did you know that every time you open a store credit card, your credit score could be damaged? Opening too many credit cards - including retail store cards - can damage your credit rating. Sure, you may miss out on getting that "deal" for 10% or 15% off your initial purchase. But credit agencies recognize that the more cards you have, the bigger your risk of racking up debt.
Having credit cards from major U.S. retailers means you'll receive their mailings, enjoy special offers, and often get reward points. But, it's also likely that carrying a balance means you pay higher interest rates, too. So if you use a $10 coupon during your next shopping trip, there's a good chance your $10 savings will be offset by the higher interest you pay next month if you don't pay the full balance when due.
Here are three quick tips for evaluating your credit cards and determining which provide the greatest value:
1. Before you apply for a new credit card, study the terms of your existing cards. What is your APR (annual percentage rate)? Is there an annual fee? Have you made any late payments causing the rate to increase or a fee to be incurred? Do any of your cards offer a balance transfer option where you can move the balance from one card to another at a lower percentage rate? How many days do you have to pay the balance?
There are numerous Web sites, such as bankrate.com, that allow you to easily compare the benefits of your existing cards to other cards. Once you understand your options, narrow your usage to the one or two cards that give you the best value.
2. Examine your purchase history as well as your upcoming needs. Do you shop frequently at a discount store? If so, you may want to see if they offer a card that has no annual fee but offers cash back. Do you fly frequently on one particular airline? Then consider that airline's branded credit card in order to increase your frequent flier points with every purchase and use those to secure free tickets.
3. Manage your accounts closely. Review your bill every month and monitor your spending. Understand the best way to get the most from your reward perks. If you choose to let your points pile up, be careful not to wait too long to redeem them. Some points may expire with time.