How Many Credit Cards Should You Have?

Should you have more than one credit card? If you’ve ever spent your way into a massive pile of credit card debt, you probably know the answer: No!

There is no magic number to that question because everyone’s situation is almost different from each other. There is not a one-size-fits-all solution for the number of credit cards a person should own. However, it’s generally a good idea to have two or three active credit card accounts, in addition to other types of credit such as student loans, auto loans,s or a mortgage.

Important key takeaways are given below and must be considered before going to apply for a credit card:

• The average American now holds 3.84 credit cards. That figure is down 4% from 2019, and it follows a pattern of U.S. consumers shedding credit card debt as the coronavirus pandemic spread financial uncertainty.
• There are potential benefits to having multiple cards, such as pairing various types of rewards cards to optimize earnings on all categories of spending.
• It’s generally recommended that you have two to three credit card accounts at a time, in addition to other types of credit.
• Remember that your total available credit and your debt-to-credit ratio can impact your credit scores.
• If you have more than three credit cards, it may be hard to keep track of monthly payments. Missing payments can result in fees and lower credit scores.

Is It Good To Have Multiple Credit Cards?

As you know the effect on your credit score is probably one of your major concerns about having multiple credit cards. That is a common consideration, but having more than one credit card can help your credit score by making it easier to keep your credit utilization ratio low.

Having multiple credit cards, along with other types of credit, can be a good thing, as long as you use each one responsibly.

Lenders and creditors like to see a wide variety of credit types on your credit report. Keeping up with multiple credit accounts suggests to lenders that you understand how credit works and know how to manage the amounts you borrow.

For example, if you have one credit card with a $2,050 credit limit and you charge almost an average of $1,800 a month to your card, then your credit utilization ratio the amount of available credit that you use is 90%. Where credit scores are concerned, a high credit utilization ratio will impair your credit score. It may not seem fair if you have just one card and pay it off in full and on time every month, so why should you be penalized for using most of your credit limit? But that’s how the credit scoring system works.

For your benefit you must keep the following points in your mind;

[1] Two factors that contribute to your credit score are the number and type of credit accounts. If your goal is to get or maintain a good credit score, two to three credit card accounts, in addition to other types of credit, are generally recommended. This combination may help you improve your credit mix.

[2.] To improve your credit score, most credit experts recommend that you should avoid using more than 30% of your available credit per card at any given time. By spreading your $1,800 in purchases across several cards, it becomes much easier to keep your credit utilization ratio low.

This ratio is just one of the factors that the FICO credit scoring model takes into account in the “amounts owed” component of your score, but this component makes up 30% of your credit score. Only your payment history is weighted more heavily (at 35%) in determining your credit score. FICO cautions that opening accounts that you don’t need just to increase your total available credit can backfire and lower your score.

How Many Credit Cards Are Too Many?

Owning more than two or three credit cards can become unmanageable for many people. However, your credit needs and financial situation are unique, so there’s no hard and fast rule about how many credit cards are too many.

The most important thing is to make sure that you use your credit cards responsibly.

Here are some things you should remember about credit, especially if you have multiple credit cards:

• Keep an eye on your balances.
• Avoid late payment fees by paying on or before the due date.
• If possible, pay off your credit card balances in full instead of only making the minimum payment.
• Check your credit reports frequently so that you see what lenders see.

Choosing Between Cards? Rewards and Perks Might Make the Difference

If you are thinking about opening a credit card account then it’s smart to think about how and where you spend your money. Many credit cards offer specialized rewards programs or other benefits that can add perks to your regular spending. These might include cash-back options for certain purchases, travel benefits, or other types of rewards.

If you want to keep things simple, that’s fine too. Focus on the credit habits you follow, regardless of the number of cards you carry. Paying on time and not using too much of your credit limits have a powerful effect on credit scores.

How do multiple credit cards affect your credit score?

Having multiple credit cards can indirectly impact your Credit Scores by lowering your debt-to-credit ratio also known as your ‘Credit Utilization Rate.

Your credit utilization rate is the amount of credit you use compared to the total credit available to you. Lenders usually like to see a credit utilization rate below 30 percent. A rate higher than 30 percent may negatively affect your credit scores.

When you open a new credit card, you increase the total credit available to you. That means you’ll be able to spend more before hitting that 30 percent credit utilization rate. If your rate is already at or above 30 percent, opening a new card could improve your credit scores by lowering your credit utilization rate.

Read our previously published article on How Credit Cards Work.

Potential Issues with Having Multiple Credit Cards

There are benefits to having multiple credit cards, but there are also potential challenges to consider, too.

So to keep your credit score healthy in the future you must follow the important points;

[1.] Spacing out credit card applications: – Each application for credit causes a “hard inquiry,” which can ding your score by a handful of points. The effect is small and fairly short-lived. However, applying for multiple credit cards in a short period can be interpreted as a sign of credit risk, and all those hard inquiries add up. Spacing credit applications about six months apart can prevent multiple hard inquiries from affecting your score.

[2.] Managing multiple billing cycles might seem obvious, but the more credit cards you have, the more due dates and credit limits to keep track of. One solution is automating monthly payments or changing your due dates to the same day or aligning with paydays to make sure you remember to pay your balance in full. 

[3.] Timing credit applications with big future purchases:- IF you’re planning to make a big purchase like a new home it’s a good idea to time your credit applications to protect your credit score. Applying for a single credit card can ding your credit score but the points will return in about six months. Keep this time frame in mind and hold off on credit card applications.

Potential impact on your credit score

Here are some important things to keep in mind if you are thinking of applying for or opening (or closing) a credit card:

Your credit utilization: The portion of your credit limit that you have in use, also called the credit utilization ratio, accounts for about one-third of your credit score. In general, keeping your balances well below 30% of your credit limit helps maximize your score and lower is better.

The opening new card could benefit your credit score by increasing your overall credit limit. That will decrease your credit utilization as long as you don’t spend more and send your balances up.

Your payment history: About 30% to 40% of your credit score is determined by your payment history, making it the biggest factor affecting your credit score. That means paying on time is far more important than how many cards you have.

Your credit age: All creditors like to see a long, stable credit history. It’s not enough to have one really old card, though. Your credit score considers the average age of all of the cards you have.

That doesn’t mean you can never close a card if you have a compelling reason like high fees or poor service.

Frequently Asked Questions (FAQs)

How Many Credit Cards Are Normal?

While Americans, on average, have nearly four credit cards each, that’s only a national average. When it comes to how many credit card accounts you should have, you need to base that decision on your specific financial situation. If you are considering closing credit cards you don’t use, think again

Is 3 Credit Cards Too Many?

There is no universal number of credit cards that is “too many.” Your credit score won’t tank once you hit a certain number. In reality, “too many” credit cards are the point at which you’re losing money on annual fees or having trouble keeping up with bills—and that varies from person to person.

Is It Bad To Have Lots Of Credit Cards?

Having a lot of credit cards can hurt your credit score under any of the following conditions: You are unable to service your current debt. Your outstanding debt is more than 30% of your total available credit. You have added too many cards in too short a time.

Does Canceling Credit Card Hurt Credit?

A credit card can be canceled without harming your credit score⁠; just remember that paying down credit card balances first (not just the one you’re canceling) is key. Closing a charge card won’t affect your credit history (history is a factor in your overall credit score).

What Will Happen If I Don’t Use My Credit Card?

If you don’t use your credit card, the card issuer may close your account. You are also more susceptible to fraud if you aren’t vigilant about checking up on the inactive card, and fraudulent charges can affect your credit rating and finances.

Conclusion

Having at least two or three credit cards can be a useful thing in times of crisis. Ideally, these cards should have no annual fee, a relatively high credit limit, and a low interest rate.

It’s generally recommended that you have two to three credit card accounts at a time, in addition to other types of credit. Remember that your total available credit and your debt-to-credit ratio can impact your credit scores. If you have more than three credit cards, it may be hard to keep track of monthly payments.

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