A longtime reader emailed me with a question that I thought made sense to address here, as I know many are probably in the same boat.
How do you decide when to apply for more credit cards?
A reader in his 20s has excellent credit and purchased the Chase Sapphire Reserve® (review) card last year. He has over 100,000 Chase Ultimate Rewards points, which he wants to keep accumulating. He says he can basically get any card he wants, but he doesn’t know where to go from here:
- He’s not a big consumer of credit cards, so realistically he won’t be splitting his expenses between a dozen cards.
- He would love to take advantage of some of the great credit card bonuses, but also doesn’t want to open and close cards (naturally), nor does he want to rack up too many annual fees.
With that out of the way, how do you decide whether to open a new card and what offers to take advantage of?
My Philosophy on Building a Credit Card Wallet
Let me start with an important warning: only ask for more credit cards if you can use them responsibly. If you end up spending too much and funding fees, you’re unlikely to win. That said, I have two general thoughts if you’re in a situation where you have good credit but a limited number of credit cards.
First of all, when it comes to opening credit cards (and most things in life, for that matter), slow and steady wins the race. If you’re starting out with just one credit card, I don’t recommend suddenly applying for 10 credit cards at once, as this could have a significant impact on your credit score. This is especially true early in your credit card journey, if you only have one or two cards.
Second, in the long run, having lots of credit cards can absolutely improve your credit score. I have over two dozen credit cards and my credit score is near perfect. You’ll want to be sure to make your payments on time, but beyond that, having more cards can improve your credit score:
- Having more credit cards increases your total available credit, potentially allowing you to reduce your credit utilization (the percentage of your available credit that you use); this represents 30% of your credit score
- Having more credit cards for a long time can help your average account age, and moreover the more cards you have, the less your average account age is impacted by opening a new card; this represents 15% of your credit score
The only other consideration is that applying for the credit card will give you an inquiry into your credit report, which may temporarily lower your score by a few points. However, this shouldn’t be a long-term problem.
How do you decide which cards to open?
If I had a good credit score, but only one credit card and a fairly poor credit history, I would probably apply for one or two cards as soon as possible. I recommend doing this quickly, because as I explained above, it will help establish and further stabilize your credit profile.
My goal wouldn’t necessarily be to get the cards with the biggest welcome offers, but rather to get cards where I see value and can see myself keeping for the long term. And if I wasn’t sure I could take advantage of long-term cards, I’d probably consider a card where I know there’s a downgrade option after a year.
An ideal card might be a card with strong ongoing benefits that more than justify the annual fee, or it might be a card with no annual fee, because it’s good to have cards that you can keep for years and years at no cost, to help you build your average accounts age.
In my opinion, there are a few different strategies to adopt here…
Since the reader already owns the Chase Sapphire Reserve® card, it might be worth getting the Chase Freedom Unlimited® at no annual fee (review). The card offers 1.5x points on all purchases, so it’s one of the best cards for everyday spending. It could be a great card to keep long-term to build the reader’s credit score, and could also help maximize spending to earn more Chase Points.
Hotel credit cards are also easy to justify, in my opinion. For example, I would consider taking the IHG $99 annual fee® Rewards Premier Credit Card (review), which offers a phenomenal welcome bonus and offers a free birthday night certificate, IHG One Rewards Platinum status and much more. This should more than justify the annual fee on an ongoing basis, but if not, it should be possible to upgrade to the IHG® Rewards Traveler Credit Card with no annual fee (review).
I also think it’s good to diversify the card issuers a bit, so if it was me, I’d consider taking the $95 Citi Premier annual fee duo® Card (balance) and the Citi® Double Cash Card with no annual fee (balance). Both cards are excellent complements and have big bonuses.
You can even transfer Citi ThankYou points to some of the same partners as Chase Ultimate Rewards. If after one year you decide not to pay the annual fee on the Citi Premier Card, you have downgrade options, such as the Citi Rewards+® Card (Revision) and Citi Custom Cash℠ Card (Revision).
There are obviously many other options, but this is just one example of a few different directions you can go.
At the end of the line
It’s exciting to have a great credit score and to be approved for your first “big league” credit card. However, it can be difficult to decide what to do from there, especially when trying to maintain (or even improve) your credit score.
Having more credit cards (and using them responsibly) can absolutely improve your credit score over time, but I recommend taking a slow and steady approach. If I only had one or two cards, I would recommend asking for an extra card or two that you plan to keep for the long term. These can be cards with no annual fee or cards with benefits that more than offset the annual fee.
Then see how things go – you’ll probably be pleasantly surprised at how your credit score and overall credit profile has changed, so hopefully after about six months you’ll be able to recover some more maps. But I think it’s a good start.
If anyone has similar experiences or tips, feel free to share them below!