The number of cards you should have depends entirely on your financial situation and spending history. The most important thing to ask is: Can I pay off the full balance on every card each month? Having several cards is a lot of responsibility, and if you doubt your ability to pay each monthly balance, it might be best to avoid collecting multiple cards. In the long run, it is always best to resist the temptation to keep spending.
Live Without a Credit Card
Before applying for a credit card, remember that not owning one at all is a perfectly valid choice. Using only cash or a debit card associated with a checking account works well for the roughly 19% of American adults who don’t own any credit cards. Despite popular belief, you can survive and thrive without a credit card.
When sticking with cash, the only money available is what you have with you or what you’ve saved. For some, that’s an effective form of budget discipline. Adding a debit card to the mix offers convenience and allows online purchases without the temptation to overspend.
The main downside to living without a credit card is the increased difficulty with building a credit score. You’ll need a good score to take out a mortgage or personal loan, and it’s more challenging to get one without a credit card. There are other ways to build credit, like a history of timely payments on student or car loans, so 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 is a convenient and relatively simple way to build a stable credit history for larger financial commitments (such as buying a home) down the road.
Another drawback to living without a credit card is missing out on the potential to earn rewards on your spending. Some banks offer debit cards that earn rewards for purchases, but these are few and far between. Debit cards and cash also don’t offer the same purchase and fraud protection credit card companies usually provide.
Get a Single Cash-Back Card
For those applying for a first credit card, we recommend finding a card with no annual fee that pays cash-back rewards on every purchase. For instance, the Discover it® Cash Back card offers 5% cash back on everyday purchases at different places each quarter up to a quarterly maximum when activated. Plus, earn unlimited 1% cash back on all other purchases. This provides a great opportunity to build comfort with how rewards and credit cards work. Even if the credit line is not much to start, it may be enough to cover regular expenses.
Cardholders may also consider a card in the Visa or Mastercard networks, which are accepted by more retailers, especially abroad, than Discover. Top picks include the Citi Double Cash® Card, Chase Freedom Flex®*, Chase Freedom Unlimited® and Capital One Quicksilver Cash Rewards Credit Card.
Students applying for a first credit card who don’t have much income or credit history should consider student credit cards that are aimed at this specific profile.
Add Multiple No-Annual-Fee Cards Based on Where You Spend
When adding cards to your wallet, think about where you spend the most with your credit card and educate yourself on which cards offer extra rewards in these places. Keep your eye out for cards with no annual fees.
A good starting point could be to find a credit card that rewards the most for grocery shopping. The Blue Cash Everyday® Card from American Express (Terms apply, see rates & fees) offers 3% cash back at U.S. supermarkets, U.S. gas stations, and online retail purchases in the U.S. (on up to $6,000 in each category per year in purchases, then 1%), and 1% cash back on other purchases. Cash back is received in the form of Reward Dollars that can be redeemed as a statement credit or at Amazon.com checkout. Another option is to apply for a flat-rate cash-back rewards card with a primary bank.
Canceling a credit card early on while building a credit history could damage your credit score. Reducing credit lines may also increase your credit utilization rate, which can reduce your score.
Depending on your lifestyle, there may be other options for additional cards, an alternative to those offering cash-back rewards. Consider a card that rewards the cardholder with points or miles redeemable for travel expenses. The Bank of America® Travel Rewards credit card and the Discover it® Miles card are two examples. Both are flat-rate cards that allow cardholders to redeem miles as credits to eligible travel expenses (for example, 2,500 miles = $25 travel credit). You may also want to make sure that any travel-based credit card has no foreign transaction fees if you plan to travel internationally.
Specific retailer credit cards may also be convenient. These types of credit cards offer benefits and rewards tied to the respective retailer. Need a new work wardrobe? You may want to look at a Macy’s-branded card. Nordstrom, Home Depot, Best Buy and Amazon also offer co-branded or store credit cards with unique benefits. (Amazon has several cards that offer increased rewards on its brands.) The Target Circle™ Credit Card* offers 5% off on purchases at Target in store or online purchases, plus earn 2% on dining and gas purchases and 1% everywhere else, free shipping for online orders and a $0 annual fee.
Pay Annual Fees for Cards With Better Rewards
Sometimes, specific rewards justify paying an annual credit card fee. Consider loyalty to brands beyond a specific retailer, since most retailer cards don’t require an annual fee.
The key brands here involve travel. If someone stays most often at Marriott hotel properties or flies primarily with American Airlines, a Marriott Bonvoy or an AAdvantage-branded credit card may be just the ticket. Most of these brand-loyal credit cards charge an annual fee. Try to pick the credit card offering the most benefits you’d use in excess of the annual fee.
Consider these travel brand-specific credit cards: The New United℠ Explorer Card, The World of Hyatt Credit Card and Alaska Airlines Visa Signature® credit card*. These cards charge an annual fee, but each represents a specific brand loyalty for travelers. For example, The World of Hyatt Credit Card offers a free night stay annually at a Category 1 to 4 Hyatt hotel. That $95 annual fee beats room rates that could be well over $100.
With airlines, benefits vary when choosing an airline-specific card and considering which you’ll actually use is important. For example, Alaska Airlines offers convenient flights across the U.S., and it’s easier to achieve a preferred status on Alaska Airlines than with United Airlines, which often flies the same routes. Plus, the Alaska Airlines card offers an annual companion fare starting at $122 ($99 fare plus taxes and fees from $23) after you spend $6,000 or more on purchases within the prior anniversary year. Add in the $95 annual fee for the Alaska Airlines Visa Signature® credit card* and cardholders are basically getting an airline ticket of any value for a companion for a little over $200, assuming the card would be used to meet the minimum spending required to earn the annual companion fare. In other words, the perks make the annual fee worthwhile if they’re used.
Some credit cards with annual fees offer enhanced rewards on grocery and gas spending. The Blue Cash Preferred® Card from American Express (Terms apply, see rates & fees) provides top rewards in these categories: 6% cash back at U.S. supermarkets on up to $6,000 per year in purchases (then 1%), 6% cash back on select U.S. streaming subscriptions, 3% cash back at U.S. gas stations and on transit (including taxis/rideshare, parking, tolls, trains, buses and more) and 1% cash back on other eligible purchases. Cash back is received in the form of Reward Dollars that can be redeemed as a statement credit or at Amazon.com checkout.
These high earning rates come with a $0 intro annual fee for the first year, then $95. Compare this to the lower earnings on the $0 annual fee version of the card, the Blue Cash Everyday® Card from American Express.
Pursue Big Rewards and Welcome Bonuses
Pursuing big rewards and welcome bonuses can sometimes pay off, but it can be a risky game, and not everyone plays wisely. Big rewards often accompany much higher annual fees, and high credit limits can make it tempting to spend more than necessary.
A clear example of a big rewards credit card that could pay off for the right cardholder is the Chase Sapphire Reserve®. For its hefty $795 annual fee, cardholders get a $300 credit toward travel purchases paid for with the card each year, Priority Pass airport lounge access, primary car rental insurance when they pay for their rentals with their card, premium trip insurance, Visa Infinite privileges, IHG One Rewards Platinum Elite status and several hundred dollars more in lifestyle benefits. Another popular card for those playing the high end is The Platinum Card® from American Express (Terms apply, see rates & fees). Similar to the Chase Sapphire Reserve®, The Platinum Card® from American Express has a hefty annual fee of $695 and equally weighty benefits.