How many and what type of credit cards should you have? The answer is not only highly individual but is also likely to evolve—with your finances, your spending, your knowledge and the credit offers available to you.
I should know. I have nine credit cards now, although I rarely carry more than two or three in my wallet. But if I’d known what I know now when I applied for my first card fresh out of college eight years ago, I would probably only have six. Ok, maybe seven.
Some prefer to live without any credit cards, so they won’t be tempted to spend money they don’t have. Others can do very well with a single card that pays cash back, or maybe two cards—one for everyday spending and one for eating out, or for travelling abroad. According to Experian, Millennials have an average of 2.5 cards each, while Baby Boomers average 3.5. That sounds about right for most people.
But then there are folks like me, who make a (lifestyle enhancing) hobby out of maximizing credit card rewards—and particularly travel rewards. Fact is, I couldn’t have afforded all the flights I have taken or stayed at such nice hotels, without those travel rewards. I’ve learned some lessons in my adventures through credit card land, which I’ll share below.
But first, a necessary disclaimer: I pay off the full balance on all my cards every month. Having nine cards doesn’t mean I spend any more than if I had two or three. My lessons, therefore, are most useful to folks who pay off their balances monthly, don’t believe having more cards tempts them to spend more, and don’t mind spending a little time to read the fine print on card offers.
Another warning: I opened these cards over eight years. It could hurt your credit score—and jeopardize some bigger goal, such as getting the lowest mortgage rate possible—if you open multiple credit card accounts in a short period of time. It can also hurt your score to close cards, particularly if they’re the oldest ones in your wallet. Which is more reason to learn from my experiences and build your credit card portfolio a bit more selectively than I built mine.
Below, I’ll describe the five stages of credit card ownership I’ve passed through, with lessons from each. Any one of these stages may suit you just fine.
Stage 0: Live Without a Credit Card
Before choosing to apply for any credit card, remember that the option exists to not own one at all, using only cash or a debit card associated with a checking account. I call this “Stage 0” and view it as the default option. Indeed, 20% of American adults don’t have any credit cards. You can see tips on surviving and thriving without a credit card here.
Sticking to cash, the only money you can spend is money on-hand or saved. For some, that’s an effective form of budget discipline. Adding a debit card to the mix offers convenience and allows you to do things like make purchases online.
One downside to Stage 0 is the limited rewards potential. However, a few bank accounts do offer debit cards that earn you rewards for purchases.
There is another downside to Stage 0. You will have a more difficult time building up a credit score, compared to those who carry at least one credit card. That could come back to cost you if, for example, you want to take out a mortgage. But there are other ways to build up your score, such as timely payment of student and car loans. Building credit should never be the sole justification for taking on debt. Still, for those without other loans, a credit card paid in full each month can help build credit to buy a home down the road.
Stage 1: Get A Single Cash Back Card
I got my first credit card in my own name the month after I graduated from Cornell University. I had a full-time job and was living on my own for the first time. I knew my biggest expenses (outside of rent) would be for necessities, such as groceries, gas and dry cleaning. (Yep, in my first job, I had to wear a suit every day).
Starting out, your first credit card should be a no-annual-fee card that pays cash back rewards on everything you buy. My choice was the Discover Cash Back Card (now known as the Discover it Card) which pays 1% cash back on every purchase (with no caps) and 5% back on rotating categories with a cap. That 1% cash back on every purchase allowed me to use my card on necessities and to start building a credit history of my own. My credit line was not much, but it was enough to cover my major expenses each month.
If I had it to do over again, however, I would have picked a card that uses the Visa or MasterCard network, which are accepted by more retailers than is Discover. My top picks for Stage 1 today would be the Citi Double Cash Back Card (which Forbes Advisor has named the best all-around card for 2019) and the Chase Freedom®, Chase Freedom Unlimited®, and Capital One® Quicksilver® Cash Rewards Credit Card.
If you’re applying for a first card while you’re still a student—meaning before you have much income or credit history—read about the best student credit cards here. (Note that the Discover it Card still makes this list, since it matches all the cash back you’ve earned at the end of the first year and even pays a $20 bonus for each year your GPA is 3.0 or higher. It also offers an easy transition to a non-student card.)
Stage 2: Add Multiple No-Annual-Fee Cards Based on Where You Spend
Building from your first credit card, the next step is to add cards that offer extra rewards for the places you spend the most. Focus on cards with no annual fees.
In analyzing my choices for my second credit card, I looked for a card that rewarded me the most for my grocery shopping. I chose the Blue Cash Everyday® Card from American Express which offers 3% cash back on up to $6,000 of grocery store spending every calendar quarter. At around the same time, I also applied for a Visa card from my primary bank, PNC, and got what was formerly known as the PNC CashBuilder Card: a single-rate earning cash back rewards cards.
Looking back at these decisions, having three cash-back cards was excessive. The PNC card became my primary Visa card for a time. But I didn’t cancel the Discover card because canceling a credit card this early in building my credit history could have led to a decrease in my credit score. Among other things, it would have shortened my already brief credit history and would have also lowered my total available credit lines. A lower credit line increases your credit utilization, which can also reduce your score.
There are other choices for a second card, in addition to another cash back card. Again, this should be based on your lifestyle and where you spend. For example, if you travel a lot, you might consider a card that pays you in miles that are redeemed to cover travel expenses. The Bank of America Travel Rewards and the Capital One® VentureOne® Rewards Credit Card cards are examples of these types of cards. Both cards are single-rate earning cards that allow you to redeem miles as credits to travel expenses (i.e. 2,500 miles = $25 travel credit).
My fourth credit card was this Bank of America card and resulted from another mistake I made that you can learn from. I applied for the Bank of America Travel Rewards Card because I planned several international trips and the three other cards, I had all imposed foreign transaction fees. By that time, I was back in school full time earning my MBA. The student version of the Bank of America card was one of the only cards I qualified for with a $0 annual fee and no foreign transaction fee.
Lesson one: I should have made sure one of my three cash back cards had no foreign transaction fee. (A good choice in that regard is the Capital One® Quicksilver® Cash Rewards Credit Card.)
Lesson two: If you’re thinking of returning to school full time or otherwise taking a break from earning, make sure to line up the cards you need while you’re still working and earning. Although your credit score isn’t affected by your current income, your eligibility for various cards is.
In addition to considering your travel needs, you may want to add a specific retailer’s credit card. These types of credit cards offer benefits and rewards tied to a specific retailer you frequent—or are about to spend a lot of money with in the near future. Most of these cards are only accepted by the named retailer. Need a new work wardrobe? Look at Macy’s card. Similarly, Nordstrom, Home Depot, Best Buy, and Amazon all offer their own credit cards with unique benefits. (Amazon also offers two Visa cards, including one that gives Amazon Prime members 5% back on their spending on Amazon and at Amazon-owned Whole Foods and made Forbes’ list of The Best Cash Back Cards for 2019.)
At this point, I got my fifth credit card: the Target RED Card. The card offers a 5% cash discount on all purchases at Target, free shipping for online orders, and a $0 annual fee. This card complimented my other cards. I shopped frequently at Target, buying everyday items that were cheaper than at the local grocery store. So, I took full advantage of the card’s benefits.
To review, in Stage 2 you may end up with a variety of no-fee credit cards—in addition to your first cash back card—based on your spending. Had I simply stuck with Stage 2, I would have eventually closed either the PNC or Discover card, since both offer similar cash rewards. The American Express Blue Cash Everyday offers most of the additional benefits beyond rewards (mainly, secondary insurance for car rentals) that came with the Discover card.
Stage Three: Pay Annual Fees for Cards with Better Rewards
You may reach the point where you want specific rewards that justify paying an annual credit card fee. Take a close look at your loyalty to specific brands—beyond shopping at a specific retailer, since most retailers’ cards are free.
The key brands here involve travel. For example, if you stay most often at Marriott hotel properties or fly American Airlines, you may choose to apply for one of their credit cards. Bear in mind, most of these brand loyal credit cards charge an annual fee. At this point, try to pick the credit card that offers you benefits in excess of the annual fee.
Seeking specific rewards, I obtained my sixth, seventh, eighth, and ninth credit cards: Hilton Honors American Express Card from American Express, United℠ Explorer Card (remember this one for when we reach Stage 4) from Chase, The World of Hyatt Credit Card* from Chase, and Alaska Airlines Visa Card from Bank of America. All of these cards, except for the Hilton Honors Card, charge an annual fee. Each of these cards represents a specific brand loyalty from my past travels.
I chose the Hilton card because my loyalty to its family of brands (especially Hampton Inn) was greater than to other hotel groups and because the card, which carries a $0 annual fee, enables me to nearly double the points I earn from a Hilton stay. Here I should mention that as a proud graduate of Cornell University’s School of Hotel Administration, I’m probably more aware of which corporation owns which named chains than your average traveler. Still, this information can easily be found on the web pages promoting these cards.
A United Airlines credit card fits my lifestyle since I now live near an airport where United has a fortress hub. The World of Hyatt card offers a free night’s stay annually at one of Hyatt’s lower-tiered hotels (and one of those hotels is located near my brother). That $95 annual fee beats room rates of $399.
Lastly, the Alaska Airlines card offered the most convenient flights to go visit my brother in San Francisco. An airline enthusiast could easily point out the flaw here: both United and Alaska Airlines fly this same route. However, it’s easier to achieve a preferred status on Alaska Airlines than with United Airlines. Plus, the Alaska Airlines card offers an annual companion fare certificate that allows you to take a companion anywhere for about $125. Add in the $75 annual fee for the Alaska Airlines Visa card and you are basically getting an airline ticket of any value for a companion for about $200, which is one of the reasons the card made Forbes’ list of The Best Airline Credit Cards of 2019. In other words, it more than pays for itself.
My spending on these additional cards is generally hyper-focused; I use them primarily for their specific brands. Meanwhile, I continued to use credit cards I acquired in Stage 2 for my everyday expenses. The key is to identify your own behaviors that provide an opportunity for greater rewards—before you shell out an annual fee.
Do you spend gobs of money feeding your growing kids? Well, for an annual fee of $95, the Blue Cash Preferred® Card from American Express provides 6% cash rewards on up to the first $6,000 at U.S. supermarkets you buy every calendar year, compared with the 3% cash back the no-fee version of this card (the one I have) pays. That means, if you spend $500 a month on groceries, you will earn an extra $180 in cash rewards a year. So even after deducting the $95 annual fee (see rates and fees) for the Preferred version of the card, you’ve gotten an extra $85 in rewards, which can be redeemed as a statement credit. Maybe you haul those hungry kids long distances to their travel soccer (or hockey, or whatever) games in a gas guzzler? Well Amex’s Blue Cash Preferred gives you 3% back at U.S. gas station purchases, compared to 2% from the no fee version. Anyway, you get the point. It can, in the right circumstances, be worth it to pay a fee.
In my own case, I didn’t stay at Stage 3 card ownership for long. This turned out to be an error in judgment that I am still working on resolving. At Stage 3, I had chosen each credit card carefully, after considering my specific spending behavior. Later on, I got greedy for big sign-up bonuses and jumped into Stage 4, in which a consumer is enticed by big bonuses or big rewards, sometimes in return for paying an even higher annual fee. This level can work for some card holders, but just as with Stage 3, requires thought and planning.
Stage 4: Pursue Big Rewards and Sign-Up Bonuses
At this final level of credit card ownership, you may end up looking like a chess master or a novice. The master thinks several steps ahead and keeps control of the board—meaning, he’s planned ahead how to make a high fee pay off; he doesn’t let having high credit limit cards or the lure of rewards tempt him to spend more than he would otherwise; and he doesn’t grab for every bonus offer without thinking about the consequences (such as how opening so many cards it could affect a credit score).
Chess isn’t for everyone. It takes time to become a good player. So even if you have an excellent credit score—generally required to play in Stage 4—do not feel obligated to do so.
The clearest example of a Stage 4 credit card that can pay off if you know what you’re doing is the Chase Sapphire Reserve Card, which Forbes has named 2019’s Best Travel Rewards Card for Frequent Travelers. For its hefty $550 annual fee you get a $300 credit towards travel paid for with the card; Priority Pass airport lounge access; primary car rental insurance; premium trip insurance; Visa Infinite privileges; and 50% more points value when redeeming points for travel in Chase’s Ultimate Rewards program. Another popular credit card for those playing in the high end is the The Platinum Card® from American Express. Similar to the Chase Sapphire Reserve, you pay a hefty annual fee (recently, at $550 – see rates and fees) and get hefty benefits, including currently a hefty welcome bonus.
Be careful not to make a high fee super premium card your sole credit card. It’s best to pair one of these cards with a no-annual-fee card. If your life changes (say, you’re not travelling so much) you may want to drop the high fee card.
I’ve decided for now not to apply for a super-premium card. One reason is that I already have so many cards, and don’t want to overextend myself or must cancel some of my older cards.
But I did briefly play the bonus sign-up strategy in Stage 4 and I’ll admit I made some novice mistakes. I took out two additional credit cards simply for the sign-up bonuses—huge awards of points and miles, which I earned by charging the required amount in the first three months. That’s how I ended up with my 10th and final credit card: Bank of America Cash Rewards Card. The card has no annual fee and I saw an inviting bonus offer and took advantage of it. I decided at that point I had too many cards and I ended up cancelling my PNC cash back card, which was one of my oldest cards. The net effect was a small drop in my credit score.
The other bonus offer I bit on—for the United℠ Explorer Card—was only no fee for one year. To avoid the fee, I ended up trading it before the second year for the no-fee United MilegagePlus Rewards Card *. When the superior and also no-fee United TravelBank Card * debuted a few months later, I called again and changed to the new card. As a current holder, I wasn’t eligible for the new cardholder bonus, but the switch was nevertheless worthwhile. (In the table below, you’ll see I only count United as one card.)
Some people happily acquire credit cards solely for sign-up bonuses and then cancel the card—often before the annual fee charge arrives after one year. This is known as “churning-and-burning”. I wish them all the best. But aside from the difficulty of keeping track of all this activity, there’s the possibility it can affect your credit score, so it’s a dangerous strategy if you’re going to be in the market anytime soon for a major purchase like a house. There’s also the possibility that even if your credit score remains solid, a bank will deny you a card you really want because you’ve opened too many accounts in the past year or two.
Here’s my advice on the bonus game: if you can use a new type of card (say, one that doesn’t carry a foreign transaction fee, or one that has good travel rewards, or one that allows you to save big on groceries or gas), then by all means, weigh the available bonus offers in your decision. But don’t be lured into opening too many duplicative credit cards simply for the bonuses.
My own personal goal is to return to life at Stage 3 (no more bonus chasing for now) and to reduce my credit card portfolio by one or two over time.
Here’s a table showing the history of the credit cards I’ve opened and (in two cases) closed. (Note that I counted all three United cards as just one card, since I never had more than one version of the United card at a time, but exchanged one for another and then another.)
My aim in describing my own journey through the five stages of credit card ownership is to help you understand which stage might suit you best and how to avoid the mistakes I’ve made. When looking at my own credit card portfolio, I see that those I picked later—especially my hotel loyalty cards—suit my lifestyle better. Yet I’ve kept cards I’ve outgrown for fear of damaging my credit score. That suggests that when you are ready for your first card, rather than grabbing the first offer you see, you should do some research. For example, if you’re looking to open a student credit card, check out the details of the non-student version of that card you can graduate to and compare it to other options available to working adults.
Remember, many people carry just one credit card. They have had one card for years, maintain excellent credit, and earn substantial cash back rewards without having to worry about which card they’ll pull out and take with them on any given shopping trip or vacation.
On the other hand, some folks successfully operate at Stage 4. They continue to open new cards to chase bonuses or to capture the most deluxe travel rewards. But this involves risk. There’s the risk that you’ll end up paying a high annual fee that doesn’t make sense given your spending and lifestyle. There’s the risk that you’ll overspend just to earn rewards (or justify that fee). And there’s the risk that all that credit card churning will hurt you when you apply for additional credit products, such as a mortgage.
Whatever you decide about how many cards to own, I urge you to follow my three cardinal rules.
- Use plastic whenever possible, making sure you get a reward.
- Don’t buy anything with plastic you wouldn’t buy if you only had cash.
- Make sure you pay off your balance in full every month.
To view rates and fees of the Hilton Honors American Express Card, please visit this page.
To view rates and fees of The Platinum Card® from American Express, please visit this page.
To view rates and fees of the Gold Delta SkyMiles® Credit Card from American Express, please visit this page.
Forbes adheres to strict editorial integrity standards. To the best of our knowledge, all content is accurate as of the date posted, though offers contained herein may no longer be available. The opinions expressed are the author’s alone and have not been provided, approved, or otherwise endorsed by our partners.
In the spring of 2008, an upperclassmen during my time at Cornell University’s School of Hotel Administration dubbed me “The Airline Guy”. In 2011, I began writing a blog about my opinions on news in the airline #BIO_SEPARATOR_HERE#...
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