Americans love credit cards. As of Q4 2018, the New York Federal Reserve estimates that there are nearly 480 million credit cards in circulation throughout the United States, racking up a total balance of $870 billion.
How many cards do you have, and why do you have them? What benefits do you see – aside from being able to buy things that you can't afford to buy with cash?
A new Experian survey finds that 62% of Americans have one to five credit cards, with three on average. In addition, one-third of respondents plan to apply for a new credit card within the next six months.
"It's difficult to imagine a world without credit cards," said Rod Griffin, Director of Public Education at Experian. "So much of our everyday lives rely on credit for convenience, to respond to an emergency, to pay for something over time – enabling your money to work harder – and yes, for points; getting a free flight or hotel room is pretty nice. Do you need to be responsible with a credit card? Of course. But you can say that about a lot of things that should be used 'according to the instructions.' When used properly, credit cards are a powerful financial tool."
We prefer variety in our cards, but we like rewards even more. Just over two in five respondents have retail/store-specific cards (which often provide store-specific rewards), while 39% have other types of rewards cards. Another 16% carry airline-specific cards.
However, rewards are in third place for favorite credit card benefits. Only 36% of respondents cited rewards as one of the greatest benefits of credit cards, while 42% liked having a cushion for financial emergencies and 38% preferred not having to carry cash.
Just over one-third of respondents said building creditworthiness was a major benefit – consistent with the 32% of Americans with secured credit cards. Secured credit cards are excellent for building credit since they are backed by a deposit, allowing people with poorer credit to qualify.
Nearly one in five respondents liked having a record of all transactions, while 12% said credit cards help with budget management. Other noted benefits include fraud protection (15%), fast transactions (10%), and the ability to draw cash advances (9%).
What about credit card drawbacks? There's a central theme related to overspending and poor choices.
Over half (51%) said high-interest rates were a major drawback, while 36% cited sinking deeper into debt as a downside. Both factors are negated if you never charge more than you can pay off at the end of each month.
A third of respondents mentioned the risk of identity theft as a disadvantage of credit cards. Let MoneyTips protect your credit and your identity with a free trial.
Two of the other most-cited drawbacks were annual fees and high-cost fees. You can address those problems through choosing credit cards with low or no fees, avoiding fees that are related to late payments or cash advances, and keeping your credit score in good standing, so you qualify for the best credit card offers. You can check your credit score and read your credit report for free within minutes by joining MoneyTips.
The drawback list shows how rewards can be a double-edged sword. If you select cards that maximize rewards for the tradeoff of higher fees or interest rates, you are more likely to overspend and negate rewards with excessive fees and interest charges.
Typical credit card rewards run between 1% and 4%. Let's say you earn 4% cashback or $40 on every $1,000 that you charge. Use an online calculator to see how much of a balance will wipe out that $40 within a month or two. You may be surprised at the answer. And a late payment fee alone could wipe out most of that by itself!
While two of the greatest benefits show fiscal responsibility (using credit cards primarily as an emergency financial buffer and building creditworthiness), two others give the incentive to overspend (rewards and the convenience of not carrying cash). Even if you planned to use your credit card only for emergencies, temptations exist. Stick to your budget to help you avoid the impulse buying that leads to excessive debt.
Use your credit cards responsibly, regardless of how many you have. If you're starting to feel like you have most of America's 480 million credit cards – and your balances are trending toward $870 billion – perhaps it's time to cut back for a while.
If you want more credit, check out our list of credit card offers.