Susan Hume, Associate Professor of Finance, Department of Finance, School of Business, The College of New Jersey on WalletHub Discussing Credit Card Use
How many credit cards should you have?
The average American today has almost 4 credit cards with a credit limit of over $30,000 (according to Experian). This may be a low count as it doesn’t include food and travel credit cards. Having more than 1 credit card makes it more likely you will miss a payment just due to the complexities of keeping tabs on when each bill is due. This can be a growing and expensive cost, as interest rates on credit cards at over 20% are now much higher than a year ago. Having high credit card expenses makes it more likely your debt owed will increase to a burdensome level and not get paid off each month.
According to the World Bank, the country with the highest percentage of credit cards in 2021 was Canada at 83% of the population. In the US about 2/3rds of the population has a credit card, which puts our rank at 18 out of about 120 countries.
Some advice on the number of cards to carry – is there a “right” number of credit cards?
The less the better, in my opinion, due to the possibility of overspending above your income level, the need to have a dedicated time management system to keep track of your monthly bills due for payment, and the high-interest rate expenses with fees that credit cards carry. Your credit score is better when you have more than one credit card if you are responsible and not spending above your income level to meet your monthly obligations.
Here is an added reason to have 3 or less credit cards. Consider a recent study by MIT Sloan School of Business by researchers Prelec and Banker. Their study on the brain neural pathways suggests that using a credit card for a purchase has a positive pleasurable effect to encourage spending. “They found that credit cards serve to ‘step on the gas’ by putting costs out of mind regardless of the price of the product. More specifically, the study revealed that credit cards drive greater purchasing by sensitizing reward networks in the brain, involving the same dopaminergic reward center (the striatum) that is exploited by addictive drugs like cocaine and amphetamines. The act of putting that plastic credit card in your hand is associated with enjoyable purchases.” This contrasts with paying in cash which does not activate the pleasure centers in your brain. Essential credit cards (e.g., gas) do not have the same pleasurable effects as restaurant and travel use. The authors caution us to consider that many credit card purchases are done through apps, and we need to understand the impact on brain activity of using these new methods.