How Many Credit Cards Should One Have?

The straight answer to this is “Depends”. The number you should have depends on many factors we will dissect in this article. Many credit score companies estimate that the average American uses (or has) 4 credit accounts.

You can optimize points and other perks like interest-free financing and travel insurance using more than one credit card. When deciding how many credit cards to carry, you should always consider your current credit rating and financial circumstances.

Is It Good to Have Multiple Credit Cards?

No matter how many credit cards you have, there are a few general rules to remember while deciding to get another one.

To be authorized for new credit cards, you may have to manage many cards if your credit is fair or bad (Experian says a score of less than 670 qualifies). Your credit score may improve enough that you should wait to acquire a new credit card.

On the other side, if your credit score is in the 670 to 850 range, you have a better chance of getting approved for a new credit card. You’ll be better positioned to take on another loan if you have good or exceptional credit scores, which show you’ve controlled your credit usage and kept track of your accounts.

While there isn’t a magic amount of credit cards, you should apply for, following a few rules can help you get your finances under control. To be approved for major loans like car loans and apartment rentals, your credit score may be impacted by the number of credit cards you hold and their aggregate credit limits.

How many credit cards is too many?

Is there an optimal number of credit cards? If so, how many do you think you can have? You can open as many credit cards as you like, as long as you use them wisely and adhere to appropriate credit practices, such as paying all of your payments on time and in full.

You can’t be penalized for having too many credit accounts, but you can be penalized for having too few. Credit bureaus recommend a goal of five or more accounts, which can be a combination of credit cards and loans.

It can be difficult for scoring models to give you a score if you have only a few accounts. A “thin file” is a collection of four or fewer accounts. Thin files are more difficult to score high on, and lenders may perceive them as riskier.

Your credit actions can impact your score more when you have a thin file than when you have a thick file. As an illustration, if you only have a few credit cards, it won’t take much spending to exhaust your total credit limit. A credit utilization score is based on how much of your available credit you utilize, and those with the best ratings use less than 10%. Keeping your credit utilization low may be easier if you have several cards.

Conversely, if carrying multiple credit cards makes your life more difficult and you miss a payment, your credit could suffer. Avoid missing deadlines by keeping an eye on the clock.

How multiple credit cards affect your credit score

Your credit score might be boosted or lowered depending on how you manage your several credit cards, so it’s important to keep this in mind. When getting a new credit card, it’s important to keep an eye on the following things.

Payment records

Paying your bills on time is the most significant component in determining your credit score. Be sure to do so to prevent late fees and penalties. Having more than one credit card may make it more difficult to keep track of all of your upcoming payments.

For Malani’s advice, “Call your credit card company and have them change the billing cycles so that they are identical for all your cards.” “You’re less likely to miss a payment because it’s easier to recall one day than numerous.”

Changing your payment due date in-app or online is a common feature many credit card companies offer. As an additional safety measure, you may set up automatic payments, eliminating the need to worry about remembering different payment due dates.

Debts (aka credit utilization rate)

Another major aspect of your credit score is the amount of money you owe on all your credit cards, which is known as your credit usage rate. Experts recommend that each card’s use rate not exceed 30%. To determine your credit card utilization rate, simply sum up all your outstanding balances on all your cards and divide the total by your available credit limit.

With many credit cards, you’ll be able to spend more and keep your balances smaller, which improves your credit score. Even yet, “the biggest drawback is that if you’re not responsible, you can get into a ton of incredibly expensive debt. Realize that just because you have a lot of credit available doesn’t mean you should spend it.” Malani echoes that.

If you open a second credit card, you’ll be able to maintain a lower utilization rate because you’ll have access to more credit. Access to more credit might be a tempting excuse for people to overspend, leading to a poorer credit score.

An example of how having many credit cards might improve your utilization rate is provided below: Carole only has one credit card, whereas Millie has four.

Millie’s total credit limit is $10,000: $4,000, $3,000, $2,000, and $1,000 on each of her four cards.

Carole has a $2,000 credit limit. on a single card

This is what their monthly usage would be if they both spent $1,000 a month:

Millie: 10% ($1,000 / $10,000 = 0.1 X 100)

Carole: 50% ($1,000 / $2,000 = 0.5 X 100)

Using the same amount of money on four different credit cards, Millie can keep her overall credit card use rate lower than Carole. Millie, on the other hand, needs to exercise caution with her increased credit limit.

The average length of a credit history

Your credit history gets shorter on average with each new credit card you get. A few points can be taken away from your score, but if you open numerous cards in a short period, the points can pile up.

After 15 years on the market, if you opt to open a new credit card today, you’ll only have a 7.5-year credit history instead of the usual 15. Your credit score could take a hit as a result of this.

The number of credit inquiries

An issuer of credit cards will check your credit record each time you apply for one, regardless of whether you’re authorized or not. Over time, your credit score will recover the damage these queries have done.

Inquiries on your credit record increase as you apply for more credit cards. Many card issuers offer pre-qualification applications that allow you to examine your chances of getting approved without affecting your credit history. However, keep in mind that your credit will be accessed if you decide to go through with a formal application.