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How Many Credit Cards Should You Have?

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It happened again—you were drawn in by another great credit card promotion. You signed up for a credit card with a bank that was offering $500 cash back for hitting $4,000 in purchases in the first three months, not to mention the 5x rewards points for restaurants and travel.

It was a great deal, but now you’re looking down at your overstuffed wallet asking yourself, “How many credit cards should I have?”

While there’s not a one-size-fits-all answer, the number of credit cards you should have depends on the associated risk to your credit score. While the factors that impact a credit score can be swayed positively by opening a new line of credit, the opposite can also happen.

Consider how your credit utilization, payment history, mix of credit accounts and new credit inquiries will be impacted before signing up for the next best credit offer.

Do Too Many Credit Cards Hurt Your Credit?

Having multiple credit cards isn’t bad if you’re using them wisely. With every new account comes the need for careful credit monitoring. Your responsibility to make on-time payments and scan for suspected fraud gets a little more complicated with multiple credit accounts to manage.

Equifax estimates that people with higher credit scores are overall less likely to default on loans, including credit card debt.

While the physical number of credit accounts you have can slightly factor into your overall credit score, the effect is usually minimal, and it’s worth looking at the big picture of how it will affect your credit score long-term above anything else.

How Many Credit Cards Is Too Many?

Spending habits vary widely, and so should the number of credit cards in your pocket. While credit bureaus aren’t looking directly at the physical number of credit cards you own, they look at alternative signs to determine creditworthiness. Take a look at the factors that affect credit scores most, and determine how they will be impacted if you open another line of credit.

It sounds complicated, and you’re probably still wondering, “Should I have more than one credit card?”

We’ll break it down even further.

The average American owns 3.5 credit cards.

If you can’t afford your existing credit card bill, even one additional card could be considered one too many. On the other hand, if you’re opening the line of credit to take advantage of benefits while lowering your credit utilization, an additional line of credit might make sense.

In extreme circumstances, people have attempted to open multiple lines of credit to get the benefits and subsequently closed the card. This strategy is called churning, and lenders may notice the tactic and may deem the borrower a liability. In short, you probably shouldn’t start a new line of credit with every offer mailed to you.

How Many Credit Cards Does the Average Person Have?

The Federal Reserve Bank of Boston estimates that, on average, each American has 4.2 credit cards. Further, of approximately 314 million people in the United States, there are 160 million credit cardholders, according to McKinsey.

Can Adding a New Credit Card Improve My Credit Score?

On its own, the number of credit cards a person has usually does not impact credit score. How you use that line of credit is the most important consideration. In the larger equation of how your credit score is calculated, the more important aspects to consider are if bills are paid on time, in full and with a consistent debt utilization of 30 percent or less.

A chart comparing debt utilization ratio and new credit cards.

So, do more credit cards help your credit score? The answer is, they can. To determine whether or not you should open another line of credit, you should understand the triggers that can impact your score. Consider how these credit score factors may be affected:

  • Credit utilization: Experts recommend keeping your credit utilization at 30 percent or below. Opening a new line of credit can reduce the overall utilization, but only if you’re spending the exact same amount while the limits of your loans increase.
  • Credit age: How long you’ve had each type of credit is factored as a portion of your score. If you open a new card, consider keeping the old ones open to continue reaping the benefits of your longest-standing credit line.
  • Payment history: While a new credit card won’t have any immediate effects on your payment history, missed and late payments may impact your credit score negatively in the future.
  • Mix of credit accounts: Having different types of loans and credit debt under your name factors into your overall score. If your debt only consists of retail credit cards, versus an array of auto loans, mortgages and student debt, you likely won’t see a positive improvement when financing a big-ticket item.
  • New credit inquiries: While new credit inquiries can affect scores in different ways, it’s a good rule of thumb to space out credit applications with ample time in between each.

While there are benefits to having multiple credit cards, there isn’t a cut-and-dry answer to how many credit cards you should have. You need to be able to manage the new debt responsibly and look at factors that may have an impact on your hard-earned credit score.

Before signing on the dotted line, look at the state of your credit score and note the credit card’s benefits, limits, statement end dates and payment due dates, and then decide if it’s worth the responsibility.


Sources: Federal Reserve Bank of Boston 1, 2 | Leverage Ratios

Posted in Credit Card
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