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Is there a limit to the number of credit cards I can have?
In theory, there’s no limit to the number of credit cards you can have. In practice, it all depends on the number of cards you may be approved for by banks and other credit card issuers.
Due to Australia’s responsible lending laws, lenders cannot sign you up for a credit product, such as a credit card, if it’s not suitable to your financial situation. In particular, the Australian Securities & Investments Commission (ASIC) says that a lender is required to check whether you can repay the card’s credit limit within three years. The more cards you hold, the greater the possibility it could be a stretch for you to tick this box.
In assessing your ability to manage a credit card, a financial institution will look at your income, regular household expenses, any other debts you may already have (including other credit cards), as well as your credit report as maintained by credit bureaus such as Experian, Illion and Equifax.
According to the Federal Government’s MoneySmart website, for each credit card you’ve held in the last two years, your personal credit report will show the card provider, and the credit limit on each card (not the balance owing). In this way, a credit card issuer can potentially see at a glance if offering you an additional credit card could leave you under financial pressure, in which case you may be knocked back for an additional credit card. Having a credit card application rejected may also damage your credit score.
You can check your credit score for free with Canstar or via the Canstar App.
Is it good to have multiple credit cards?
There are potential pros and cons to having multiple credit cards, which can be worth weighing up if you’re thinking about having more than one card.
Potential pros of having multiple credit cards
- The potential to improve your credit score: Sensible use of a credit card coupled with regular payments could help to boost your credit score, as it shows lenders that you’re responsible with the credit you’re given. Keeping a credit card account open, even if you no longer use the card, could favourably impact your credit score over time as well.
- Emergency funds: If your wallet is lost or stolen, or if one credit card is cancelled because your account has been hacked, it could be handy to have an additional card as back-up for emergencies.
- Access multiple reward programs: Having several credit cards could be a way to tap into different card reward programs that suit your spending patterns. However, keep in mind that rewards credit cards typically come with higher annual fees and purchase rates.
- Ability to segregate spending: Having more than one credit card could allow you to segregate and track spending on different items. For example, a couple may use a joint credit card for shared bills, and have separate, individual cards for personal spending.
- Opportunity to tap into bonus offers: Credit card issuers often introduce bonus deals for new cardholders. This could provide an opportunity to take on a card that has zero annual fees for the first year, or cashback offers when you spend above a certain limit in an introductory period.
- Take advantage of card features: A number of credit cards offer extra features such as complimentary travel insurance and airport lounge access, as well as purchase protection. This could be a money saver if you’re heading off on vacation, and your current card doesn’t offer this type of inclusion. However, you’d have to make sure that the savings from these features are offsetting the annual fees you may need to pay for these cards.
Potential cons of having multiple credit cards
- It could lower your credit score: Making multiple card applications can hurt your credit score, particularly if you apply for several different cards in a short space of time. The damage can be compounded if your applications are also rejected.
- Harder to manage multiple card payments: Having more than one credit card could make it harder to stay on top of card payments by their due date. A study by Experian found just under a third (30.3%) of Australians with seven or more credit cards had one or more late payments in the previous three months, while only 4.7% of Australians with a single credit card showed any late payments. Late payments can incur penalty fees, and as Experian cautions, falling behind with payments can also damage your credit score.
- The potential to pay more in fees: Credit cards can come with a variety of different fees, and owning more than one card can mean doubling (or even tripling) up on these costs. One way to trim the cost is to look for credit cards that charge no annual fees.
Deciding how many credit cards you should have
There’s no magic number of credit cards you should have. Sticking with just one card could have the advantage of keeping life simple, but there could be other reasons to own several cards.
The key to deciding if having more than one credit card is right for you, is understanding your card usage patterns, your ability to stay up to date with multiple card payments, and whether having several credit cards to your name could tempt you to overspend—or worse, leave you battling mounting debt.
