How Many Credit Cards Should You Have?
Are there too many credit cards? With so many cards offering tempting rewards and signup bonuses, you might be tempted to apply for one, two, or more. But which one is overdoing it? There is no magic number of credit cards that everyone should have. Having more loans in general can improve your credit score, which is important for obtaining loans, saving on insurance rates, and even finding a job . On the other hand, multiple cards can become debt traps if you don’t pay off your balance. Here’s what you need to know.
The total number of cards does not greatly affect your score
When credit bureaus calculate your credit score, the number of credit cards you have is actually only a minor part of the equation. Only 10% of your FICO score is related to the type of credit you use, and only a fraction of that depends on how many cards you have.
You may have one, two, or 22, but what matters to your credit score is whether you pay your bills on time and how little credit you use (also known as leverage ).
How many cards do most people carry with them?
According to The Motley Fool, Americans have an average of two to three credit cards. In 2018, the FICO found that people with a high credit score (800+) tended to have an average of three cards face up. This may be because people with higher credit ratings are able to open more credit cards, though. Credit card nerds who love chasing travel rewards are also likely to have multiple cards open at the same time (although not nearly as many as the Guinness World Record holder who has 1,562 cards ).
Generally speaking, your credit score won’t go down just because you have multiple cards. The exception is when you open and close multiple cards at once (or “churn” cards ) to maximize the rewards you earn from different cards. This could temporarily damage your account: a new loan request lowers your score by about five points for about six months.
More credit cards can help with the use of credit
The more credit you have but are not using, the better for your credit rating. As each new credit card increases your total credit limit, you can reduce your debt-to-credit ratio (assuming you don’t add more debt). For example, if you owe $ 500 on one credit card with a $ 1000 limit (50% usage) and open a new credit card with a $ 4000 limit, this will make your total use 10% ($ 500 out of 5000) that lenders would like to see.
Of course, you can also ask your credit card company to increase the limit to $ 5,000 instead of getting a new card. It will also improve your credit score without the minor temporary hit that you will take when you open a new account – plus you only need to manage one credit card.
The more the variety of cards, the more benefits
Many people use credit cards not only for convenience, but also for rewards (although financial experts disagree on whether the pursuit of rewards is worth worrying about). You can use one card that gives you high cash back, for example, on gas and groceries, and the other that rewards you with travel points when you dine out or travel, allowing you to maximize your reward on every transaction.
In addition to rewards, the cards offer features such as price protection, car rental insurance, free baggage check-in on airline flights, travel insurance, and airport lounge access , which can be a compelling reason to open a new card even if they have high annual fees.
Reasons You Shouldn’t Get More Cards
At this point it seems like you should apply for additional cards, right? Well, there are a few more aspects to consider.
Although not permanent, your credit score still gets worse.
As mentioned above, applying for a new card can cause a temporary drop in several credit scores and will also affect your credit history, which tracks how long you have had credit accounts. Lenders love to see a long and enduring history of fiscal constraints, so they get nervous when you start getting a new loan. If you are looking to enter the market for a large loan soon and want a good interest rate based on your credit score, ditch new cards if you can.
More cards are hard to maintain
To prevent credit card companies from closing your accounts due to inactivity, you need to regularly use each of your cards – when you have more than one, it can get cumbersome. You do not want your account to be closed as a reduced credit limit and (potentially) a lower age of your credit history will affect your credit score.
More cards and higher credit limits can make you spend more
If you’re not careful, you could end up spending too much money, especially if you’re chasing rewards and trying to meet minimum spending requirements. Again, credit cards can be a gateway to debt problems if you don’t pay off your balance diligently.
Bottom line
If you are responsible for your expenses, pay your bills in full each month, and keep your balance levels low, additional cards are unlikely to hurt or even help your credit history. How many is right for you really depends on your comfort in handling and managing them.
This post was originally published in 2014 and was updated on November 5, 2020 to reflect more current information.