How Many Credit Cards Do You Need?

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Credit health relies on five factors: payment history, debt and credit utilization, credit length, new accounts and inquiries, and diversity. The common thread of these factors is credit use. Gaining experience with revolving and installment accounts is the best way to illustrate responsibility, but how much do you need? When deciding how many credit cards to open and maintain, one school of thought suggests relying on each account for a specific purpose. For example:

  • Card A: Necessity items such as groceries, gasoline, clothing, qualifying utilities, etc.
  • Card B: Entertainment such as movies, dining out, etc.
  • Card C: Business expenses or other items outside the scope of monthly spending.

Another strategy suggests using a single card for all purchases in order to collect maximum rewards in the form of cash back, frequent flyer miles and more. In either case, the keyword is restraint.

Why not open as many credit cards as you have pre-approved offers? There are a few reasons:

  • Temptation to overspend. The more credit cards you have, the easier it is to spend. Opening a new account for the sake of it sets a dangerous precedent. Without a clear purpose, another credit card is a catalyst for credit damage.
  • Coinciding payment periods. Juggling multiple balances and interest rates is challenging, especially if you can only afford to make minimum payments. Overusing credit can lead to inflated balances, a high utilization ratio and credit damage.
  • Hard inquiries. Every time you apply for a new line of credit, a hard inquiry is placed in your credit file, allowing a third party to view and assess your information. While one or two inquiries won’t cause lasting damage, multiple instances can hurt you score.

The bottom line: There is no “right” number of credit cards, only a careful balance of deliberate use, debt utilization and account diversity. Pay your bills on time, keep your utilization ratio low, and talk to a professional about long-term credit strength.

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