How many credit cards do you have in your wallet?
Team Clark has often fielded the question: How many credit cards should I have?
And while there’s no “perfect” answer to that, rarely do you come across someone who has as many as Richard in New Jersey.
Richard, who is a frequent traveler, opened more than 25 credit cards for various bonuses, rewards and perks. He recently wrote to money expert Clark Howard seeking advice on trimming some of those cards from his wallet now that he doesn’t travel as frequently.
In this article, we’ll look at Clark’s advice to Richard as he navigates annual fees and credit score implications. We’ll also look at some lessons we can take from what Clark told him to apply to everyone’s credit card situation.
Ask Clark: How Should I Eliminate Credit Cards from My 25+ Card Collection?
During a recent episode of The Clark Howard Podcast, Clark addressed Richard’s credit card situation.
Richard in New Jersey says:
“I know you don’t say don’t close credit cards as it impacts your score. Due to a lot of previous travel, I have over 25 credit cards. Five are not active, and I would like to start closing these not just for fees but for relevance. I closed my first one with an annual fee of $495, and my score dropped from 850 to 838. But it’s back climbing. What strategies should I use? Wait until 850 again, or every two months close the next one?”
Clark responds:
“You can close some cards if you want! 25! As long as your score is 780 or above, you can do whatever you want. I wouldn’t willy-nilly close all those cards at once, but I would periodically close cards that are no longer relevant to you that have annual fees. Cards that don’t have annual fees: I would keep them open. But the annual fee cards that have no relevance anymore, you should give them the heave-ho.” “On this point, I’d like to add one annex … for people who have been playing the mileage game and you got a card because they had a sign-up bonus of 60 to 120,000 miles, and you really don’t fly as much as you thought or anything like that: Go ahead and bite the bullet and downgrade that card to one with little or no annual fee. If it’s an airline-issued card and it’s just not doing a lot for you, they all have an entry-level card. That’s $95 to $99 a year, somewhere right in there. You get a free bag if you check bags and a few other token benefits, but not the big package. You don’t get the lounge or anything like that. Downgrade to that, at least. You keep the card in the game with that airline, and you reduce your expenses so much. The airline cards are getting up to the point where they’re like 700 bucks for the premium cards. It’s a good idea at the very least, if it’s not truly relevant, to do the downgrade.”
How You Can Apply This Advice To Your Wallet
Odds are pretty good that you’re not carrying around more than 25 credit cards with a near-perfect credit score like our friend Richard.
But there still are some actionable items that you can take away from this interaction between Richard and Clark:
Keep no-annual-fee credit cards open and active. Clark has this as a tenant of his rules for using credit cards, and he held to that in his advice for Richard. It has a few clear benefits for your credit score: Your total available credit remains high, which helps keep your credit utilization rate low. Additionally, you’ll continue to show good payment behavior and your average age of credit history remains higher if the accounts stay open. Team Clark suggests using a small recurring payment, such as a streaming service, as a way to make regular payments that keep the account in active status.
Before outright canceling, consider downgrading your premium credit cards if you’re not seeing clear value. This is a topic we’ve talked about several times recently in the age of the premium travel credit card. Are you actually seeing clear value above your annual fee each year? If not, you need to stop paying for a credit card you’re not using enough to justify. Call the number on the back of your card to explore your options for downgrading. You may be able to drop to a no-annual-fee option without closing your account. And as Clark mentioned above, airline cardholders may find that the $95-99 annual fee level is a good fit thanks to free bag perks.
Make sure you actually need a high-annual-fee card before applying for a new one. Clark says that you should be able to check these 3 boxes before you apply for a big annual fee card. If you can’t, maybe you should avoid joining Richard by jumping deep into the travel points game. You’ll likely save yourself some cash by opting for a no-annual-fee card instead.
Do you have credit card annual fees you need to get rid of? We’d love to hear how you’ve handled it in the Clark.com community.
The post Why Clark’s Advice to a Man With 25 Credit Cards Is Relevant to Your Wallet appeared first on Clark Howard.