(I'm a brit who moved to the US.) It is far more common for people to have multiple cards. There are also a lot of affinity cards - associated with airlines, stores, sports teams etc. A random site[1] claims just under 4 cards on average for those who have any cards. A card issuer also requiring that the consumer remember yet another PIN isn't going to find it too useful for expanding their business, just as the consumer is going to prefer less hassle.
Those stats made quite interesting reading - what I felt is missing is the reason /why/ there is such a high multiple-card ownership rate?
I personally have a single debit card, and a single credit card, as do most people I know - is the culture in the US really so different that people need so many cards?
I've visited the US, but do not live there - I never felt properly safe when I was just swiping my card and signing to pay for things. I don't even know if the fraud protection would apply to my European chip and pin card if I paid for things that way.
There are quite simply a lot more banks and other financial institutions that issue credit cards. When I lived in the UK there were essentially 4 banks, plus a dozen building societies (US equivalent: credit union). Today the US has about 6,000 banks and similar number of credit unions.
In order to get customers they have to stand out from their competitors which means marketing, card perks and rewards. With that much activity, it is almost inevitable that people will end up with more cards.
Americans also like their stuff complicated. Look at health care and politics as two examples. What it often manifests itself as is different choices for different circumstances, whereas others would lump it all together. For example you generally don't have a single "bank account", but instead you have a checking account and a savings account, not necessarily at the same bank even! And yes there is federal law around what constitutes a savings account.
When making a purchase, the optimum card to use will vary. For example a store affinity card will likely offer discounts at that store and affiliated ones. Some offer cashback but it varies by category (eg it may be 5% for petrol stations, 2% for restaurants, 1% for supermarkets) with each having its own percentages and other limitations (eg min quantities, max cash back). And if you are saving up airline miles, you may want to use that relevant card instead of the others until hitting your goal.
I try to keep my cards to an absolute minimum but ended up with 4 all from my bank: a debit/atm card, another one tied to my health savings account (which has to be different), a credit card, and a second backup credit card.
This. Amazon card gets better returns for me on Amazon purchases (plus it got stolen half a dozen times so now it only gets used on Amazon...this happened because someone physically pried my locked apartment mailbox open and used that info to order more replacement CCs to their address), other card gets better returns for travel at restaurants, other card gets better returns for everything else, then I have a debit card since some gas stations only accept those. I also carry cash since some places are cash-only, and some parking meters only accept quarters, so I have a stack of those in my car as well.
You're basically leaving money on the table if you're doing most of your transactions on a debit card or in cash in the US. The credit card companies all offer set percentage cash back, rotating categories of higher cash back, and/or heavily discounted miles. Discover and Chase both offer cards with 5% rotating categories that are different between the two and have no yearly fees. Even the cards with a fee often end up being worth it due to the large amount of miles you can rack up with them.
Thats not even getting into the shadier side of card churning for the sign up bonuses or buying gift cards so that you can pay your rent and for other things that have a fee associated with them when you do anything besides a bank transfer.
Not to mention the very common practice of using one card with a very high balance and 0% intro fees to sweep lots of other card balances onto, in order to effectively suspend all your interest for a year.
Indeed. This works even for balances that didn't originate on credit cards - I have a Chase Slate card which has literally never left my house because I only use the account for its 18-month zero-interest offer, which was useful for a small student loan I wanted to pay down quickly.
Many people I know use special card offers similarly. Want those 50,000 airline miles? Better sign up for Delta's Amex, can always cancel after the first year... etc, etc. There are very strong incentives from the card issuers themselves for Americans to carry multiple credit cards, and if you use the cards responsibly you can rack up some serious benefits for no cost.
Your student loans could be paid via credit card without a surcharge? Or is it just that the surcharge was lower than the interest rate and you planned to pay it off in 18 months so it was worthwhile? That's an interesting strategy I haven't seen before.
That's not a fee, that's the interest rate. You would pay 20% over a year of interest. There are many many cards with promotional rates between 0% and 5% per year.
It's the cash advance fee (different from the normal interest rate on the card).
Source: I used it once to get money out like a debit card... without realizing there would be a fee, and got charged the nasty fee. For the card I tried it on at the time, the fee was somewhere between $10–20 on a $100 withdraw. Never tried it again.
Yep, my scenario was exactly like aianus's above. 1% transfer fee was much better than 6% interest since I planned to pay the balance off within the 18-month zero-interest period anyways. The card company issued paper checks specifically for the purpose of a balance transfer.
My bank and college allowed credit card payments, but there was always a percentage fee that was much higher than what you would get back from credit card rewards
In the US, almost every major retailer issues their own branded credit card, and they offer financial incentives for using that card at their stores.
As a card issuer, they get a cut of the interchange fees whenever you shop with their card, even if you're shopping at other stores. That provides both a discount on their own payment processing costs (some of the fees they pay their processors come back to them when their own branded card was used), and an additional revenue stream unrelated to their own store sales.
To entice consumers to sign up for retailer-branded cards, they offer significant discounts or rewards on purchases at that retailer.
Banks can offer rewards programs for use of their branded credit cards as well, but their reward programs can never pay out as much as a retailer-branded rewards program, because the retailer can cut into their profit margin to finance it while the bank's program has to be financed entirely through interchange fees.
It's perfectly rational to sign up for an Amazon card that offers 5% off your Amazon purchases if you shop there often. It's similarly rational to sign up for a similar program at each retailer you shop with often. So a rational consumer can end up holding a number of credit cards, some of them issued by their bank, some issued by retailers, simply in order to minimize their bills.
Beyond all that, there's also people that churn through cards in order to earn rewards for opening new accounts, or whom carry large debts and transfer balances to new cards with introductory 0% interest rates periodically to avoid accruing interest on their debt, essentially using new cards as loan extensions.
Having more credit cards can benefit your credit score in a variety of ways. The fundamental reason for this is, of course, that credit card companies want you to have a lot of cards. They're betting they can make more on your interest payments than it costs to acquire you as a customer.
Some ways having multiple cards can benefit your credit score:
- More cards = higher credit limit = lower utilization percentage when you carry a balance. [0]
- If you're young, opening lots of cards early can make sense because in a few years the "average age of accounts" will only take small hits if you add a new card. Also, if you foresee a mortgage in your future, you can cancel your credit cards and they will still continue to "age" on your credit report
- If you've missed a payment in the past, since payments are calculated as "percentage of on time payments," you can increase that percentage faster by opening more cards and making all payments on time.
- At least according to creditkarma, more accounts actually translate directly to a higher score.
[0] edit - see jdmichal's comment below. utilization = current balance / limit.
> More cards = higher credit limit = lower utilization percentage when you carry a balance.
Just want to mention that, at least some card companies report the current balance and not the carried balance. I have never carried a balance on my card, always pay in full every month, and my report still shows an amount for that card, which is basically whatever random amount I have on the card when they report.
Same. I recently had credit report pulled for a mortgage refinance, and although I pay all my credit card balances in full every month, it still showed several accounts with a "high balance relative to credit limit" or some such thing.
The high transient balance really only affects your credit a few points if you have otherwise excellent credit. It starts to ding you more if you have delinquencies or really high balance to overall limit.
I have half-a-dozen credit and debit cards. Several reasons:
1) Your credit score is negatively impacted if you close a credit card account.
2) Specific cards have specific benefits. For example my insurance company issues a credit card and if I use that card when I rent a car, I not only get automatic collision damage insurance (pretty standard on many cards) but also coverage against "loss of use" charges and other risks with rental cars that many other credit cards don't offer.
3) Some places don't take all cards. My AMEX card gives me hotel points that I use a lot but AMEX isn't accepted everywhere.
4) Many benefit programs have debit cards that are to be used for specific purposes. My HSA has a debit card, but I can only use it for medical expenses and prescription drugs.
Because the need for a particular card can be somewhat unpredictable, (and just to avoid losing them) I end up carrying about six cards in my wallet at all times.
To 1, it actually isn't or at least not as much as you might think. Relevant factors are utilization and average age of your credit accounts, going back 10 years; an account doesn't stop aging when you close it, and it doesn't fall off of your report until 10 years from the closing date. If closing an account decreases your amount of available credit enough that your utilization spikes (over 20%), then you should leave it open. Otherwise it's fine.
Another note on that, if you normally spend more than about 10% of your credit limit across your cards each month, get another card or get one of them to raise your limit. Debt utilization ratio higher than that can also drop your score. Sign up for CreditKarma and keep an eye on it to get the best rates and rewards.
Edit: another alternative is to manually pay your bill every other week to keep the utilization ratio down.
I don't know the answer. I had assumed that it was the act of closing the account that was viewed as a negative and not the reduction in the aggregate credit limit. But I could be wrong.
My wife is a manager of a bank branch and her brother is a credit analyst at another bank, and I've been told the reason it impacts your credit is because you now have less credit available to you, and you're likely now using more of your available credit.
If you have $50 available on one card and $50 on another card, you have $100 of available credit. If you close one of the cards, you now only have $50 of available credit. If one card is maxed out and the other is empty (because you're about to close it), before you close it you are only using 50% of your available credit. Once you close it, you're now using 100% of your available credit, which looks bad.
Americans have been made totally neurotic with card rewards. My mom will dither for probably 10-15 seconds every time she pays for something, which card to put that particular transaction on, in order to extract the best points. Restaurants get a better kickback on card A, gas on card B, airline tickets on card C. It's crazy I hate it.
This is why merchants get hit with anywhere from 2% to 5% fees and have no idea which card cost them so much. And why friends say they're "losing money" if they don't play this game. It's fakaked.
If their efforts were actually productive, which they aren't, it wouldn't bother me so much. Their reward depends on everyone else paying higher costs but not getting the reward
The whole shenanigans is only possible because the issuers have a monopoly where the merchant can't charge the true cost of a transition to each specific consumer. If the consumer was paying for his own kickback, the whole party would end. It works because of obfuscation and free loading off others, especially those who pay by debit card and cash.
There are at least a couple of reasons to have more than one credit card, even if your cards are chip and pin.
1. Chip and pin protects against someone who gets your card number making a fraudulent card with it and using that for card present fraud. It doesn't do very much to protect against someone who gets your card number using it for card not present fraud.
If the chip card also implements tokenization, that protects against losing your card number to attacks on card present payment systems. If it does not implement tokenization, then you can lose your card number if someone hacks into payment terminals or merchant back end systems. Also you can lose your number if an online merchant who keeps your card on file gets hacked.
So, even with chip and pin it can be a good idea to have more than one card, such as one that you only use for card present transactions, and one that you use for online transactions.
2. Cards often offer rewards. At one point I had four cards, because one gave me cash back on gasoline purchases, one gave me cash back on grocery purchases, one had a very low interest rate, and one had a rotating cash back program that changed what category of purchases it rewarded every month.
They all had no annual fees, and I usually paid my bill in full every month, so basically each card was free money to me from the rewards, except for the low interest rate card which I only used if I wanted to make a big purchase that I would take a couple of months or so to pay off.
There are a lot of different cards with different incentives. Shopping at REI? Use the REI credit card for 5% cash back. Groceries? Use this different card for 6% back.
There are advantages to the stores providing the card (data, CC fees, brand loyalty) and very easy for shoppers to apply while in the store.
Additionally, to get a good credit score, you need a high amount of available credit and long lived accounts. There aren't many disadvantages to having multiple accounts assuming you are able to manage your spending.
Single debit card, yes. But many people, including myself, have multiple credit cards for various reasons. (Backup in case of loss/rejection due to anti-fraud error, various types of affinity card rewards that want to spread around for various reasons, etc.) Also, to the degree that many still have AMEX cards, those aren't as widely accepted as Visa/Mastercard.
One American's opinion. I'm in my early 20s and in good financial standing, I have 3 credit cards with airline miles programs. Using them means for the past year I've used a free flight every 3rd flight, and my girlfriend and I will be traveling to Europe RT for $1200 for 2 tickets. I fly a lot, and it's saved me a couple hundred dollars to have a few credit cards, and the inconvenience of keeping < 5% balance on each.
I'd imagine it's because the credit card companies have less restrictions on what they can do here compared to Europe, so they can afford more extravagant offerings.
> Is the culture in the US really so different that people need so many cards?
Varied rewards across cards is a big reason. One card offers 5% cash back on gas and 1% otherwise (so you only use it on gas). Another offers 2% back generally, so you use it for most things.
Also stores convince a lot of Americans to make expensive purchases by starting a store credit card that has no interest for 12+ months.
For debit cards I keep two, but only because my main bank does not offer chipped debit cards yet and I need one that does for travel abroad.
The reason why US consumers have multiple cards (at least intelligent consumers) is because of the various cashback programs.
For example, Costco's Visa card gives me 4% cash back on all gas purchases. Costco's Visa also gives me 3% back on all travel related purchases like hotels, airlines, and restaurants. Citi Double Cash Mastercard gives me 2% back on all other purchases. Discover card runs 5% cash back each quarter on up to $1500 of one category, like online shopping, or home improvement retailers.
It's a bit of a chore to determine which card to use for every transaction, however, if you don't have credit cards, or just use debit cards, you're effectively leaving money on the table.
[1] http://www.creditcards.com/credit-card-news/ownership-statis...