Most American adults have and use credit cards, whether for day-to-day purchases or just in case of emergency. Some people only have one or two credit cards, while others have a wallet full. According to data gathered by Experian in 2017, the average adult has 5.6 credit cards. So, how many cards are too many? Unfortunately, there is no magic number. When it comes to credit cards, it’s not one size fits all. The ideal number of credit cards varies from person to person, but there are certain factors that can help you decide how many is right for you.
Credit Score
The number of credit cards you have does not directly affect your credit score, but how you use them does. Having multiple credit cards can impact your credit score in a few ways. Carrying a lot of credit card debt and having a high utilization ratio (the portion of your credit limit that you use) could have a negative impact on your credit score.
However, having multiple credit cards allows you to spread out your debt among multiple cards and can lower your utilization ratio. Keeping your utilization ratio low (at least below 30%) on all of your credit cards can significantly improve your credit score.
Spending Habits and Financial Responsibility
Perhaps one of the most important factors when deciding how many credit cards you should have is how financially responsible you are. Do you tend to overspend and make unnecessary purchases? Having multiple credit cards can just be too tempting for those that have bad spending habits. The potential for racking up an overwhelming amount of credit card debt could be too great a risk.
Do you have trouble keeping track of bills and making payments on time? Missing payments could negatively impact your credit score and late fees could add up to even more debt. If you’re already having difficulty managing your financial accounts, adding additional accounts is not in your best interest.
Card Rewards, Features, and Terms
When it comes to the number of cards you should have, choosing the right kind of cards is equally important. If you’re financially savvy with healthy spending habits, having multiple credit cards with various rewards programs and additional features can provide more bang for your buck.
Some credit cards offer extra perks, such as enhanced fraud protection, travel and emergency assistance, 90-day purchase security, and free rental car insurance. Many credit cards offer rewards programs, but it’s important to choose cards with rewards for the types of purchases you make most and perks you will actually use. Keep in mind that cards with perks and rewards are often more difficult to qualify for and tend to have higher interest rates.
Speaking of interest rates, if you’re not paying off your balance in full each month, you’ll want to choose cards with low-interest rates. It’s also a good idea to only shop for cards that have no annual fee, reasonable late fees, and low or no balance transfer fees. Having multiple cards with terrible terms and zero perks is a recipe for debt disaster.
Purpose
Perhaps the most important question is why do you want multiple credit cards? Multiple credit cards are not a good idea for those who simply want to live outside their means or have already dug themselves into a financial hole.
If you won’t be tempted by additional lines of credit, multiple credit cards with various purposes can not only build credit, but also be very useful. For example, many consumers have a card that is strictly for emergency circumstances only. Those who are self-employed also find having a separate card for business use makes bookkeeping easier. If you plan on paying your balance off each month, using a card with cash back rewards for every day purchases can actually earn you money. Knowing the intended purpose can provide some clarity when considering applying for additional credit cards.
What you need to know about opening and closing credit card accounts:
If you’re looking to open additional credit cards, it’s important to remember that the issuer will likely pull a hard inquiry on your credit when determining whether or not to approve your application. Hard inquiries have the potential to lower your credit score, especially if multiple hard inquiries are being made in a short amount of time. For this reason, you should wait to apply for a new credit card if you are planning on applying for a home or auto loan in the near future (within six months).
If you feel like you have too many cards to manage or simply have more than you need, you might be thinking about closing a credit card. Before you close an account, keep in mind that doing so could lower your utilization rate and as a result, have a negative impact on your credit score. Additionally, once a closed account drops off your report, the average age of your accounts could decrease, which can also have a negative impact on your credit score.
The Bottom Line
Ultimately, the number of credit cards you should have is how many you are comfortable managing and will help you reach your financial goals. If you’re contemplating opening additional credit cards, it’s important to consider your financial health, your spending habits, what the card offers, and the intended purpose of each card. No matter how many cards you have, always make payments on time and keep your utilization ratios low.
If you’d like more information about managing multiple credit cards, or if you’re interested in applying for a new credit card (such as the Camino Visa Platinum Rewards Card), go online at caminofcu.org or contact us at (800) 835-3400. One of our expert team members will be happy to assist you.