How Many Credit Cards Should You Have?

Either Too Many or Too Few Credit Cards Could Cost You

Is it irresponsible to have too many credit cards? And if so, how many is too many?

According to the Experian credit bureau, the average American has just shy of four cards. However, that’s not a magic number. There isn’t necessarily anything wrong with having more than that - or less. 

The truth is, handling credit responsibly is more about how you use your cards than about how many you have. 

This article will talk about the pros and cons of having multiple credit cards. It will explain how having multiple cards can actually help your credit score. It will also discuss some of the things you should do to handle multiple credit card accounts responsibly. 

Should You Have More Than One Credit Card?

Though having too many credit cards can be a sign of trouble, the right number can help you manage your finances more effectively.

The sections below explain why having more than one credit card makes sense. 

Back-up cards

Every now and then, you run into a situation in which your credit card won’t work. 

Perhaps you maxed out the credit limit by mistake. Or the credit card company flags your location for being outside your normal travels. Or the issue is with the magnetic strip, chip or another security device on your card. 

In any case, having a backup card can prevent embarrassment or hardship when one card lets you down.

Different cards for different situations

Think about the tools you own. Whether they’re in your garage, kitchen or desk drawer, you probably own more than one tool. 

After all, they have different uses to meet different needs. Sometimes you need a hammer. Other times the job calls for a can opener. Or maybe you just need to staple some papers together.

Credit cards are financial tools. They have different characteristics so you use them for different situations. 

Here are some examples:

• A low-interest rate card might be the best choice if you don’t expect to pay your balance off right away and want to minimize the amount of interest you pay.

• A cash-back card might be a better choice if you do plan to pay off your balance in full, so you might as well get a little money back on your purchases.

• A travel rewards card might be better than a cash-back card if you are making airline or hotel reservations. It might have especially generous rewards for those transactions and offer other travel-related benefits.

• A balance transfer card can be an efficient way to consolidate other credit card balances and save on interest.

Having multiple cards with different characteristics helps you pick the best one for each situation.

Credit score

If you want a better credit score, keeping a few cards can improve it. Credit reporting agency Equifax says, “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.”

It pays to be opportunistic

Significantly, Experian found that users’ age affects the number of credit cards they carry.

For example, adults under the age of 24 have fewer than two credit cards on average. In contrast, people who are 40 or older typically carry more than twice as many.. 

One reason people tend to accumulate credit cards over time is so they can take advantage of special offers. 

If a new credit card offers an especially low interest rate, it often makes sense to take advantage of it. Or perhaps a special rewards offer or sign-up bonus might catch your eye from time to time.

You shouldn’t jump at every offer you see, but you should pay attention to them. That way you’ll know a great deal when you see it.  

How multiple cards affect your credit score

It’s not surprising that having multiple credit cards affects your credit score. The following sections discuss how having additional credit card accounts may affect your credit score – for better or worse. 

Credit utilization ratio

Credit utilization ratio is the percentage of your combined credit limits that is currently in use. For example, suppose you have three credit cards with a combined credit limit of $12,000. And that you’re carrying a combined balance of $3,000 on those cards. 

$3,000 is 25% of $12,000. So, in that situation, your credit utilization ratio would be 25%. 

Keeping your credit utilization ratio low helps your credit score. The best way to do that is to keep your balances as near zero as possible. However, assuming you’re going to want to use your cards regularly, it also helps to have more credit available. Having multiple credit card accounts can help you do that. If you added a card with a $3,000 limit, your utilization falls to 20% ($3k / $15k = 20%). 

Age of credit accounts

As mentioned previously, people tend to add credit card accounts over time. When doing that, why shouldn’t they close one of their existing credit cards?

Besides the fact that closing an account would reduce the amount of credit you have available, it would also affect the age of your credit accounts. 

It helps your credit score to have credit accounts that you’ve used successfully for a long time. The ages of your oldest and newest accounts are taken into consideration, as is the average age of your credit accounts.

This is a reason why you shouldn’t necessarily close an old credit account whenever you open a new one. Doing that is likely to bring down the average age of your credit accounts, and thus hurt your credit score. Worse, if you close your oldest account, it could damage your score even more.

New credit

While there are ways that having multiple credit cards can help your credit score, it isn’t all good news. Opening a new account reduces the age of your credit accounts. Also, the credit checks that take place when you apply for a new credit account ding your credit score.

Overall, there are ways that having multiple cards can help your credit score, but it’s best to add them selectively. Pick your spots, and when you do add a new account, don’t be too quick to close an old one. 

Pros of having multiple credit cards

Based on the above, here’s a summary of some of the advantages of having multiple credit cards:

• It gives you a backup to use if there’s a problem with one of your cards.

• It enables you to use the best card for each specific situation.

• Adding cards selectively can allow you to benefit from favorable new offers.

• Having more credit available can help you keep your credit utilization ratio low. That can help your credit score. 

• Keeping old accounts active can help you preserve the age of your credit accounts. That’s another positive for your credit score.

Cons of having multiple credit cards

While there are advantages to having multiple credit cards, it’s also important to recognize the potential drawbacks:

• Having too much credit available could enable you to spend more and rack up more debt.

• Applying for and opening too many new accounts in a short amount of time could hurt your credit score.

• Having more monthly payments makes your deadlines harder to keep track of.

• Having multiple minimum payments could make your monthly payments less affordable. 

• Multiple credit cards with annual fees can add to your expense of using credit.

How to manage multiple credit cards

The following tips can help you maximize the advantages and minimize the disadvantage of having multiple credit cards:

Keep track of minimum monthly payments

Keep a schedule of when payments need to be made each month. It might help to sign up for notifications or automated payments. 

Note that along with arranging to make payments on schedule, you also need to make sure you have money in your bank account to make those payments at the right times.

Keep overall credit utilization low

The advantage of having a lot of credit available is defeated if you carry balances and up a lot of that credit.

Strive to keep your overall credit utilization percentage below 30%. If possible, pay your balances off in full each month. That will not only help your credit score, but it will allow you to avoid paying interest. 

Prioritize your cards by their intended use

Know the features of your cards and which situations suit each one best. 

For example, know which one has the lowest interest rate, so you can use that when you expect to carry a balance at the end of the month. Know which has the best rewards, and the type of rewards, so you can match that to your spending plans. 

Avoid cards with annual fees

There are plenty of credit cards that don’t charge annual fees. Paying an annual fee only makes sense if you use the card in a way that the rewards exceed the level of those fees. 

Even so, you should have as few cards as possible that charge annual fees. Also, while you may get worthwhile rewards out of those cards, keep an eye out for better alternatives. 

Don’t carry all your credit cards with you

You may have several credit cards, but there’s no need to carry more than a couple at any one time. 

Have your go-to credit cards that you carry around generally. Swap in other cards for specific situations. Otherwise, keep your cards in a secure place at home.

Detailed strategies for managing multiple cards

Juggling multiple credit cards can become overwhelming. Use these strategies to stay in control of your accounts, avoid new debt, and work on paying down your balances.

1. Pay on time every time. 

Set up automatic payments from your bank account to cover the minimum payment on each credit card. Don’t focus on the due date. Focus on the date when you’re likely to have enough money in your account to cover the payments, such as the day after payday. 

Paying on time helps you build and maintain good credit. Also, it’s a great way to avoid penalties and fees. Besides late fees, some creditors also raise your interest rate if you pay late, and that could make it even harder to pay down the debt. 

2. Use a budgeting app.

A budgeting app helps you track your spending and avoid surprises. Watching your spending could help you set limits in certain categories (such as a $50 per week limit on restaurant meals). You might also be able to set alerts for when you’re about to reach a category limit, for when bills are due, or for when balances hit a certain level. All of these could help you keep your spending where you want it on a daily basis.

3. Tame the interest beast.

If you have several similar credit card balances and you’re not sure which one to focus on first, choose the one with the highest interest rate. 

4. Reward yourself wisely.

If you don’t carry a balance on your credit cards, you could use them to earn valuable rewards like cash back or points. In that case, assign certain jobs to each card. Use the one with the highest bonus on fuel every time you gas up, for instance. If you do have a balance, though, you’ll pay more in interest than you’ll earn in rewards. So it’s better not to use them just for points. Focus on paying down the debt. 

5. Don’t run up the balance on any one card

Your credit score is affected by how much credit card debt you have compared to your credit limits. This is called credit utilization and it’s calculated for each card and overall. If you max out a card, you could hurt your score. If you pay off your credit cards, your score should go up.

Potential challenges and how to dodge them

Overload: If you’re feeling overwhelmed by having multiple cards with multiple due dates, it’s a good idea to think about strategies for reducing the number of cards you have. You could do this by paying them off one by one (usually not a quick process), or by getting a debt consolidation loan. Once you do start to pay off balances, consider closing the accounts so that you don’t end up with multiple credit card balances again in the future.

Impulse spending: Having lots of credit cards can make it easier to spend impulsively. Lock your cards so they can’t be used without first being unlocked. Adding that extra step could remind you to avoid purchases you might later regret.

Credit score blues: Applying for new credit cards usually lowers your score in the short term, and carrying high credit card balances can hurt it in the long run. Moving your credit card debt to a debt consolidation loan could help improve your credit utilization ratio, and that could make your score go up. And don’t apply for new cards until you truly need one.

Scattered due dates: Due dates throughout the month can be tricky. Call your credit card issuers or log into your account on line and ask to change your due dates.

Turning off lenders: Having too many credit cards can be a red flag for lenders, even if you don’t carry balances. If you’re applying for a mortgage, having many open credit card accounts could mean that you have the potential to run up unaffordable debt with no notice. Whittle it down to your top two or three cards and close the rest.

Fees and interest (the silent killers): If you’re carrying credit card balances, there’s little reason to keep a card that has an annual fee. You need that money to pay down your debt. In a perfect world, interest wouldn’t matter because when you pay off your balance each month, you usually don’t pay interest. But if you do have debt, interest could keep you on a debt hamster wheel. So prioritize credit cards that have the lowest interest rates.

Choose the right tool for the job

Credit cards are just one way to manage your money. 

Depending on what you need money for, a different type of credit account might be a better choice. 

If you’re a homeowner and you want to fix up your home, you might need more money than your credit card offers. A personal loan or home equity loan might make sense. Likewise if you’re trying to consolidate debt. Personal loans and home equity loans tend to have higher borrowing limits than most credit cards.

If your main goal is to control everyday spending, you might not need a credit account at all. Use a debit card instead. There’s no risk of debt and no interest charges, because you’re spending money you already have. 

It’s true that debit cards don’t help you build credit, but it’s also true that you stand a better chance of having a strong credit standing if you shed your credit card debt. If building credit is your concern, you could use a credit card strategically. Auto-pay a monthly bill, like your cell phone. Then use your debit card to auto-pay your credit card. You get the credit benefits without the risk or cost of credit cards.

Changing up your financial strategy when you want to improve your situation is smart. When you understand the ins and outs of credit cards, they work for you, not the other way around.