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RISMEDIA, January 7, 2010—While one in seven Americans has at least 10 credit cards, the average is four, according to a report from Experian. Usage on credit cards has dropped dramatically in the last two years as financially constrained consumers have reduced spending and began paying off debt. The national average interest rate on credit cards as of November 2009 is 12.64%, which has declined 0.45% from six months earlier.

So what is the correct number of credit cards a consumer should have to most effectively manage and optimize their overall credit profile? The answer is not simple; it’s not the number of cards you have, but how you utilize and manage them.

As an example, two different consumers—Ray and Rachel—have an identical credit card. Both cards have been open for two years with an interest rate of 14.25% and a credit card limit of $4,000.

Rachel utilizes her credit card each month and does not allow her balance to exceed more than about 30% of her credit line. She always pays at least the minimum payment and pays extra, as necessary, to keep her balance below a self-imposed $1,200 limit.

Ray, on the other hand, often maintains a credit card balance around $3,900, which is about 98% of his credit card limit. Both consumers pay their respective bill on time each month. However, because of the differences in how each consumer utilizes their credit card, the corresponding impact on their credit is significantly different.

Rachel’s credit card utilization and payment history provides a strong contribution to her credit score and risk profile, which should help her obtain lower interest rates on new credit in the future. Whereas, Ray is negatively impacting his credit profile based on his card utilization. Although he makes his payment on time every month, because Ray is regularly “maxing out” his credit card limit, he is actually negatively impacting his credit score and profile. Ray’s overall credit profile would be better served spreading the expense over two or three cards and maintaining the card limits at or below 30% like Rachel.

The reality is that you can have excellent credit with one well-managed credit card with a positive established history. As was illustrated with Rachel and Ray, the primary variable is how you manage your credit versus how much credit you have access to use. The general makeup of a credit score is based: 30% on payment history, 35% on the amounts you owe compared to available credit, 15% on the length of your credit history, 10% on newly established credit and, finally, 10% on the types of credit you use.

Having the right balance of credit cards and overall access to credit can be extremely helpful. Additionally, well-managed credit cards will assist you in establishing a stronger credit profile and better credit scores that can potentially lead to lower interest rates and better terms when applying for new home loans, auto loans, credit cards or even insurance.

Think carefully about adding new credit cards. Do you need the extra card to manage your credit profile better like Ray or are you exposing yourself to a greater and potentially unmanageable debt situation? Whatever the reason, it’s important to know that when you add a new credit card, your credit score will likely suffer a temporary drop until you have established a payment history with that card.

Finally, don’t make the mistake of canceling your older credit cards, even if they have higher interest rates than ones you may get on newer cards. Remember, 30% of your credit score is based on payment history and 15% on the length of your credit history. Keep that older, well-established card for that reason and use it once in a while on smaller purchases.

With these simple rules, you will know exactly how many credit cards work for you.

Jeff Mandel is president and Marlin Brandt is COO of ApprovalGUARD.

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