It’s tempting to sign up for store credit cards, especially when making frequent or big purchases. The stores typically offer very attractive incentives to use their cards, 5% to 10% for all purchases and sometimes even 40% off of your first purchase, or a flat $50 off a large purchase. If you’re buying something like an appliance or a piece of furniture, even an extra 10% off or interest free for a set time period can be significant.
And that’s how the accumulation of store cards begins. Over time, you end up with cards from different retailers. So how many credit cards is too many?
First, asking how many is not necessarily the best question to ask. There’s really no number of credit cards that’s “too many”. The question is what to do when you have accumulated too much debt from store cards.
Pay them off
Your first priority is to get to a zero balance each month on all of your credit card accounts. However, if that is not possible and you have multiple credit card balances, you can start with the store cards, since it’s likely they carry higher interest rates than other cards. That means paying them off first will save you more money in total interest charges. Store cards typically have lower balance limits than your bank credit card(s), so it should be easier to pay off the lower-balance accounts.
To get them paid off timely, create a budget and a payoff plan. It takes time and commitment to get multiple credit card accounts paid off completely. The first step is to stop using the cards and borrowing more. Don’t use your credit cards for purchases until they are all paid off. Learn more about budgeting from our online FIT Academy. You can also call or chat with us online to talk to a financial coach about budgeting and debt repayment options.
Get your paperwork organized and secured, so that your credit accounts are accessible but not vulnerable to theft. Create online logins for each of your store accounts, and use unique passwords for each. Our advice is to not carry store cards with you day-to-day. You don’t need them often, so keep them in a locked drawer or safe and only get them out for a particular shopping trip.
Don’t close the accounts
Now that you have multiple store cards open, when you pay them down to zero, it’s best to keep them open versus closing them. You want to keep the accounts open and for the most part unused. An open credit card account can add to your potential credit limit, and as long as you don’t actually borrow against that card and keep an outstanding balance, it can boost your credit score.
- The biggest factor here is the utilization rate of your available credit. If all of your cards together have a total potential balance of $10,000, and you owe a total of $1,000 to all of the accounts, your utilization rate is 10%. That’s a good rate—owing 10% or less of your potential balance it the best case scenario for your credit score. The utilization rate makes up 30% of your FICO score, so the impact to your creditworthiness could be large.
- If you were to close one of your cards with a $5,000 credit limit, and you still owed $1,000, you doubled your utilization rate from 10 to 20%. That hurts your score —this link from Credit Karma suggests going from 10 to 20% utilization could drop your credit score by nearly 40 points. So for the sake of your credit score, keep the account open and maintain paid off balances monthly.
- Another factor is the length of your credit history. If a store card is the one you’ve had the longest, you shouldn’t close the account, as it will shorten your credit history. Closing that specific account could hurt your score as well (length of credit history accounts for 15% of your FICO score).
- That means if you do want to close one or more of your store card accounts, make sure your balances are all paid off, and close the newer cards first.
- A final word about utilization: some people say below 30% is optimal, but there is no specific threshold. We recommend keeping utilization at 10% or below. Not utilizing your credit limit at all doesn’t give the credit bureaus enough information to work with to generate a useful credit score. You want some utilization to show you can handle credit accounts responsibly and your score will reflect that. Your goal is avoid carrying balances into the next billing cycle and incurring expensive finance charges.
Use them the right way
The point of a credit card is convenience and security. Don’t use credit cards to incur debt, or to get bonuses or discounts. Sure, if the discount is there, you should take advantage of it, but that’s not the reason to use credit. Every time you use any credit card, you should have a plan to have it paid off right away. If you don’t have such a plan in place, you shouldn’t use the credit card.
Keep them active—but just barely
Every credit card account is different, but generally each card should get used at least once every six months. We say keep the store cards locked up and only use them twice a year, just to keep the accounts active. Remember to pay off the balance in full right away and your credit will benefit from having the account itself and avoid the the negative impact from carrying debt. The purchase can be small and for something you need, don’t use credit at all if you don’t have a plan to get it paid off right away.
Don’t sign up for any more store cards
While having “too many” store cards isn’t necessarily a problem, that doesn’t mean you should go out and sign up for more. Every credit card application leads to an inquiry that will affect your credit score. And every credit card account that gets approved is another account that you have to manage. Keep the hassle and temptation away by declining any new offers of credit from retail stores.
Destroy them if you have to
It’s great if you can manage your multiple store accounts, keep them paid off, and only use them twice per year. But if you can’t do that it’s best to destroy the cards. End any temptation to borrow by shredding the card. Then work on paying down your existing balances.
Remember, we’re here to help if you have any questions about your debt or credit history. Our certified credit coaches can help you set up a budget and review the options available to help you pay down your excessive debt. We’ve helped millions of consumers in over 40 years of non-profit service to the community, and we can help you, too!