Just how many credit cards is too many?
While it's always exciting receiving a brand new credit card in the mail along with the prospect of racking up some great rewards and miles, having too many credit cards could actually be hurting your finances.
Gone are the days when having a credit card was a luxury to be held by a select few. These days, most people can easily apply successfully for a credit card - even multiple - but should they?
According to research in 2019 by YouGov Omnibus, Singaporeans are avid credit card users with three quarters (73%) of us owning at least one credit card, over half (56%) owning more than one, and 10% holding six or more.
One in six (16%) Singaporeans use their credit cards daily, while over a third (37%) do so several times a week, the same research showed.
Do I really need a credit card?
While you don't technically need a credit card to get by, having one is advisable in order to demonstrate your creditworthiness to lenders.
Without one, you have no way of building a credit history, which is important to get approved for loans you apply for in the future.
A healthy credit history can prove that you are excellent at keeping to payment due dates and this will be the metric future creditors use when you apply for a car, home or education loan.
If you're drawing a salary or earning an income, we strongly recommend applying for a credit card to start building your credit history as soon as possible.
Should I apply for more credit cards?
If you're wondering whether there are any benefits of having more than one credit card, the answer is yes, there are.
For the average Singaporean, we would recommend having 2-4 credit cards.
While this may sound like a lot especially if you pride yourself on your frugality, there are some major benefits to having multiple credit cards - as long as you don't go overboard.
Here are a few factors to consider before you decide on whether to apply for another credit card.
Credit cards can influence your credit rating
If you're looking to maintain a healthy credit score, it's important to keep your credit utilisation lower than 30% of your total credit limit. Credit utilisation is the ratio of your outstanding credit card balance to your credit limit.
Hence, if you're not able to increase your credit limit on a single card just yet, having two or three credit cards may be useful so that you can distribute your existing expenses and reduce your credit utilisation.
For instance, if your monthly expenses total $3000 and you split that amount amongst two credit cards to $1500 each, the credit utilisation on both cards is lowered since a smaller ratio of your credit limit is used every month.
However, be wary of the fact that applying for too many credit cards can make you appear "credit-hungry" to financial institutions which is why applying for more than 4 cards should be avoided.
Having too many credit cards sends a signal to banks and the Credit Bureau of Singapore (CBS) that you are in desperate need of credit.
While it's tempting to want to rack up different types of rewards, miles and cashback, going overboard with too many credit cards makes creditors wary of the kind of spender you are and how likely you are to be a good payor.
Rack up a variety of credit card rewards
Another benefit of having more than one credit card is that different categories of purchases can be made on different credit cards so that you can reap and maximise the rewards of each credit card.
Among the most common purchases Singaporeans make using their credit cards, consumers cited travel tickets (81%), followed by booking accommodation (76%), food and beverages (75%), clothing (72%), and electronic devices (71%) according to the same YouGov Omnibus study.
This wide range of spending categories means that with one specific credit card, only certain types of spending is rewarded while others may not be depending on the credit card's terms.
However, if you were to get one credit card which offers cashback, a second one which lets you collect rewards for dining and retail expenses and a third which rewards overseas spending, you now have three credit cards which reward you for three different types of spending.
To make the most of this strategy, understanding your spending style is key in choosing the right credit cards.
See more: How to choose your first credit card
Mastercard vs Visa vs American Express
It might also be a good idea to get one Mastercard and one Visa credit card, as both offer different rewards and certain merchants only accept one of the two.
If you're considering a third credit card, the American Express credit card could be your third option as this is less widely accepted in Singapore and other countries. However, it does have a reputation for its stellar customer service and 24-hour concierge services around the world.
Splitting big-ticket vs general expenses
Another reason to opt for more than one credit card is to split big-ticket expenses from monthly and general expenses.
This division between general or monthly expenses and big-ticket expenses allows credit cardholders to adopt a more organised and clear-sighted approach when it comes to their credit card outstanding balances.
With just a single credit card, you run the risk of maxing out your credit card and damaging your credit score in the process. Instead, holding two or three credit cards allows you to draw the boundaries of your expenses according to different credit cards more seamlessly.
If I use more than 4 credit cards, should I cancel a few of them?
If you find yourself with more than 4 credit cards and you're ready to cancel one or two of them, there is a way to go about it without hurting your credit history.
Cancel your newest credit cards first to keep a credit card which demonstrates a longer credit history.
This helps demonstrate your creditworthiness to future creditors and will come in handy for when you apply for loans or other credit cards in the future (which will take into account your credit history).
Mind your credit limit
Spending within your credit card limits is crucial to maintain a healthy credit rating.
While spreading your debt across credit cards does lower the ratio of expenses to your available limit on each card, it's still so important to remember that your total debt remains the same amount - whether on a single card or many.
With multiple credit cards, it's easy to fall into the trap of thinking that you owe less because the total outstanding balance on each card is lower for each month.
If you have more than one credit card, always track the total consolidated debt you owe on all your credit cards at any given time to avoid underestimating how much you owe for the month. Otherwise, credit card debt and fees can snowball before you know it.
Following this step will go a long way in helping you stay on top of your credit card payments every month while still maximising the benefits of having multiple credit cards.
Clearly, there are many benefits to having more than one credit card.
And so, if you're considering signing up for another credit card to rack up more rewards or earn more cashback, we're here to help you choose the right credit card.