Credit cards have long been the easiest and fastest way to earn reward points… and they look set to remain so. But how many credit card applications are too many? How many credit cards is it sensible to hold?
The answer comes down to Australia’s positive – or comprehensive – credit reporting system. And smartly – and safely – managing your credit card portfolio.
How many credit card applications is too many applications?
Bizarrely, Australia has two different credit reporting bureaus using two different credit scoring systems. (There used to be three.) How these operate in the background is more complicated than cricket’s Duckworth-Lewis rain-delay formula. It’s also undisclosed.
What we do know is that since Australia moved to a comprehensive credit reporting system similar to the US in 2018, a lot more information about your credit card applications and situation is included. Yes, the number of your credit card applications is recorded on your credit report.
But your credit card open dates and credit card close dates are captured too. What’s more, your credit card limit also appears on your credit report. This means that your credit card applications, number of credit cards, and the amount it’s possible to owe on those credit cards can all feed into how a lender assesses you.
So how many credit card applications is too many credit card applications? There isn’t a magic number that is guaranteed to be safe. Every lender has its own assessment criteria, and your income, expenses, existing debts, credit limits and repayment history can all play a role.
Credit card applications are held on your credit report for five years, although more recent applications are likely to be particularly relevant when a potential new provider assesses your application.
The takeaway? Don’t apply for cards indiscriminately. If you’re considering a new rewards card, make sure it offers genuine value and fits your spending habits before you apply.
How many credit cards can you hold without affecting your credit score?
How many credit cards you can hold without affecting your credit score is probably similar to how many credit cards you feel comfortable managing. These and your overall credit card limits can factor into how a lender assesses your application.
But you need to know that further factors that affect whether you’re approved for a credit card application include not just your number of cards and existing credit card limits, but also the balance of those credit cards. More accurately, it can come down to a thing called your credit utilisation ratio.
A credit utilisation ratio refers to how much of your available credit card limit you are using. It’s basically the percentage of your potential limit you are consuming. Now, if you’re a clever point hacker, each month you may be mopping up a lot of this limit… at least to the cap to which you will earn full points.
(Note that after October 1, some of these caps are reducing, but we will get to that shortly.)
Of course, the other essential play of a points aficionado is to clear your credit card balance in full every month. Pay interest and you’ve lost your points advantage – that’s not how you work the rewards system to win.
And remember, your credit report captures your repayment history. Miss a repayment by 14 days or more, and it can be recorded and affect your credit score. It’s also possible to repay the minimum only… not something you want to do, as this incurs interest.
In short…
Rather than focusing on a particular number of cards, the smarter approach is to make sure your overall credit position remains manageable. If you are looking for a guideline, 2-3 cards used responsibly in a year is generally a ‘safe’ maximum.
If you’re carrying several cards, it’s worth periodically asking yourself whether you still need them. An unused card with an annual fee or a large credit limit may no longer make sense simply because it once came with a good offer.
The best credit card strategy to maximise your points and minimise any effect on your credit score
The cleverest credit card approach for earning rewards points must also take into account the October 1 points revisions.
From October 1, many credit cards are altering the points paid on both sign-up and an ongoing basis, as a result of the card surcharge ban and coinciding cap on interchange fees. Interchange fees are the fees that fly around in the background between providers when you transact with a card.
In some cases, bulk sign-up points have been cut… but more the trend is that sign-up points have been spread across a year or even 18 months, to promote loyalty. And in other cases, there are caps on the amount of spend on which you can earn full points. That makes it more important than ever to pay attention to the details of the cards you’re considering.
First, let me repeat the proviso here that you must pay off each credit card in full at the end of every month to win at points hacking. There is little value in earning points if you’re paying interest to do it.
Strategies to maximise credit card rewards
That said, the smartest strategy to collect credit card rewards points is now:
- Look at your everyday spending. Work out where your biggest expenses are and which rewards card offers the best return on the spending you’re already doing.
- Check the current offers. Sign-up bonuses can be extremely valuable, but make sure you meet the eligibility requirements and can comfortably meet any minimum-spend conditions.
- Understand the ongoing earn rate. Don’t just look at the headline bonus. Check spending caps, bonus categories and what happens once you reach any monthly or annual limit.
- Consider the card’s other benefits. Travel insurance, lounge passes, dining credits and travel credits can all add significant value if you’re actually going to use them.
- Review your cards from time to time. If a card no longer offers enough value to justify its annual fee, consider whether it’s still worth keeping.
And there’s no need to rush into an application simply because a big bonus catches your eye. The best rewards strategy is one that works alongside your normal spending and financial circumstances.
Don’t forget to look for great deals
The RBA changes are reshaping the Australian credit card market, but they haven’t made rewards disappear. In fact, there are still some very attractive offers around, and the competitive nature of the market means banks and other providers will continue to look for ways to attract customers.
So keep an eye on what’s available. A card that wasn’t particularly interesting six months ago might suddenly launch a great bonus or introduce benefits that suit your spending.
At the same time, don’t feel pressured to collect every bonus going. The goal isn’t to have the most credit cards. It’s to have the cards that offer the most value for you.
And finally, remember that earning points is only half of the equation. Finding great redemptions can make an enormous difference to their value.
There’s little point collecting hundreds of thousands of points if you don’t know how you’re going to use them. For frequent flyers, that might mean keeping an eye out for Business or First Class reward seats. For others, travel bookings, shopping rewards or cashback might provide better value.
The best points strategy is ultimately pretty simple: spend what you normally would, choose cards that suit your circumstances, keep an eye out for genuinely great offers, and have a plan for using the points you’ve earned.
