You’ve likely heard the common lore that it’s dangerous to have too many credit cards. You opened your first credit card before starting college, and you’ve been terrified to open another one since. But is it really that bad to have a handful of credit cards?
The short answer is no. There is no gold standard when it comes to the number of credit cards you should have. It all depends on your unique financial situation. For some people, having five or six credit cards is totally fine. For others, it’s best to stick with just one or two cards.
The number of credit cards you have not only affects your credit score, but also your debt utilization ratio and other important factors that contribute to your financial well-being. Because of this, it’s important to be very strategic when it comes to how many you have.
Read on for the lowdown on how many credit cards you should have and why.
How Many Credit Cards Is Ideal?
In 2017, the average American had around three credit cards, according to a report conducted by Experian, one of the three major credit bureaus. According to this study, many of these credit cards were retail store cards (which are easier to obtain). The average balance a consumer held on their credit cards was $6,354.
The number of credit cards you should strive for, however, depends on your credit history, your ability to manage credit, and how you plan on using your credit cards.
Have One Card If:
You’re just starting to build your credit history. With this fresh start, you’ll likely want to opt for just one credit card. Your credit limit will likely be low, and it’s important to safely and slowly focus on growing your credit history before you open several cards. The same applies if your credit is in bad shape and you’re looking to repair it. Stick with just one card to get back on track.
Have Two or Three If:
You plan on using your credit card instead of your debit card for things like groceries, shopping, and other everyday purchases — and you have a history of managing credit well.
Have Four or Five If:
You like credit cards that have travel points and cash back rewards. If you like to use your credit cards to rack up hotel points, store rewards, or airline miles, it’s OK to have more than three credit cards, so long as you’re responsible when using them. Try to open no more than five credit cards, and don’t open more than one at a time, as opening several at once can negatively impact your credit score.
If you have closer to eight or 10 cards and are considering closing some, don’t. Closing credit cards can negatively impact your credit score. The best thing you can do if you have several credit cards is make sure you use all of your cards, even if it means charging just $10 or $20 per month on some of them.
Keep in mind that the number of credit cards you have to your name won’t have a major impact on your credit score. After all, the “types of credit” category in credit scoring only contributes to about 10% of your credit score. What matters more is how you use those cards, which we’ll cover in more detail below.
The Benefits of Having More Credit Cards
Although you’ve heard the warnings about having too many credit cards, there are some benefits to having more than just one credit card in your wallet. Below are a handful of the perks that accompany having more credit cards.
Potentially Better Credit Utilization Ratio
Credit cards have a credit limit, which can be anywhere from $200 to $20,000, if not more. Your credit utilization ratio is the amount of available credit you use. For example, if your credit limit is $6,000 and you spend around $1,500 each month, your credit utilization ratio would be 25%.
The ideal credit utilization ratio is anything below 30%. Staying below 30% will have a positive impact on your credit score.
The benefit of having more credit cards is that you’ll likely have more overall credit available, which means you’ll be able to stay below this number. If you have just one credit card with a credit limit of $1,000, for example, you might struggle to stay below 30%.
More Options in an Emergency
Let’s say you’re out walking your dog and you drop your credit card. It was your only card, and the replacement card won’t be here for five business days. But you were planning on purchasing new furniture the next day, and you wanted to charge everything on your credit card.
If you have more than one credit card, you’ll be fine in an emergency. You can just use a different card to charge things while you wait for your new card to arrive. But if you only have one credit card and you lose it or it’s stolen, you could be stuck in an unfortunate situation.
More Potential Benefits
Many people use their credit cards to redeem points, miles, cash back rewards, and other perks. If you’re responsible with your cards, having more can allow you to benefit from these perks.
If you use a handful of travel credit cards responsibly and for a long enough period of time, for example, you could save enough points for a free flight or a free night in a hotel. Or, if you use a cash back card responsibly, you could benefit from a $100 statement credit every so often.
Credit Cards Offer Added Protection
If your credit card gets stolen, all you have to do is call the card issuer and they’ll remove any fraudulent charges. This is a relieving contrast to a debit card theft, where money from your actual bank account is compromised. For this reason, many people prefer using credit cards over debit cards for important purchases.
Some credit cards also offer damage protection or purchase protection, which means that in the event something you purchased with your credit card is damaged or stolen, the company that issued your card will cover the loss to some extent.
The Drawbacks of Having More Credit Cards
There are reasons credit experts warn against having too many credit cards. These inherent risks are particularly important if you have a history of less-than-stellar personal finance habits.
Below are some of the major drawbacks and downsides of having too many credit cards.
Your Credit Score Could Drop
Although the very act of having many credit cards doesn’t make your credit score dip (in fact, there’s a link between having more credit cards and a higher credit score), opening and closing too many at a time can.
Every time you apply for a new card, it’s considered a hard inquiry on your credit report. Having one or two hard inquiries isn’t a big deal. But having too many hard inquiries in a short period of time could cause your credit score to drop and make it difficult to secure another loan form, such as a mortgage.
If you’re opening new credit cards, just make sure you spread them out.
Organization Could Be Tricky
Keeping track of one or two monthly payments is simple. Keeping track of seven or eight? Not so much. For the organized among us, this isn’t really a drawback. But for those who struggle to stay organized when it comes to managing finances, having too many credit cards open could lead to disorganization and missed payments.
If you have several credit cards to your name and struggle to stay organized, one of the best things you can do is set up automatic payments or monthly “bill due” reminders on your phone. You can also download a credit card payment tracker app, like the TPG To Go app, to stay on top of things.
Your Risk of Going Into Credit Card Debt Is Higher
As we discussed above, having more available credit can be beneficial, in that it can allow you to have a lower credit utilization ratio, which will positively impact your credit score.
However, having more available credit is only beneficial if you’re responsible with it. Having $20,000 or $30,000 of available credit across multiple cards could be tempting for some people. It could lead to excessive spending, and, eventually, debt. Add that with super high interest rates, and you could be digging yourself a hole that will be difficult to escape.
If you’re going to have several open credit cards, make sure you have healthy personal finance habits in place. If you know you’re the type of person who will be tempted by having too much available credit, think twice before opening a new card.
Annual Fees Could Add Up
Not every credit card comes with an annual fee. But many do — especially rewards cards. In fact, a Value Penguin study found that the average credit card had an annual fee of $147. The study also found that 67% of American Express cards had annual fees, while 43% of Bank of America cards did, 67% of Chase cards did, 41% of Citibank cards did, and 31% of Capital One cards did.
When it comes to opening new cards, take a hard look at the annual fees in comparison to the card’s potential perks. If you’re opening an airline rewards credit card, for example, try to determine whether the cash value of the points you’ll get each year will be more than the $100 or $200 annual fee. If it doesn’t seem worthwhile, pursue another card.
The Final Say
There isn’t a one-size-fits-all approach for how many credit cards you should have. You can have one credit card, three credit cards, or 10 credit cards and have an excellent credit score. What matters more is how you use your available credit.
If you’re already in significant debt and have a history of struggling to manage credit, you might want to stick with one or two cards. But if you’re a seasoned pro when it comes to managing credit, you could have five or six cards (or more!). As long as you pay your bills on time, avoid excessive annual fees, and make sure you use the credit cards regularly, you’ll be in great shape.