With just credit cards, you could easily fill your wallet. Cards that maximize airline miles, cards that give you cash back on groceries, cards that offer rewards when you shop at your favorite store... Where do you begin? And where do you end?
You won't find a magic number of credit cards to pursue, but there are certain guidelines that will help you on your way. It is important to understand that the number of credit cards you hold - and their combined limits - will impact your credit score, which in turn will affect your ability to secure important loans.
As long as you manage them responsibly, multiple credit cards can benefit your finances. The ideal number of cards varies greatly from person to person because financial wants and needs differ so much. When deciding if you should add more cards to your wallet, here are a few things to keep in mind.
How many credit cards should you have?
In a nutshell, you want at least two cards, with each of them from a different network like Visa, American Express, Mastercard, etc. Moreover, each card should offer you a different kind of reward, such as cash back, miles, or points.
It is ultimately your spending habits and ability to pay all your bills on time that determine the sweet spot for you.
A 2021 report by Experian found that the average American has 3 credit cards and 2.3 retail or store cards. Individuals typically build their credit portfolios over time as their credit needs grow.
If you're just getting started with credit, it's a good idea to build good financial habits. Making sure you have a regular income is just the beginning. Good organizational skills, a good understanding of money management, and the ability to meet deadlines are all essential.
Credit scoring formulas don't penalize you for having too many credit accounts, but they can penalize you for having too few. The credit bureaus suggest that five or more accounts - a mix of credit cards and loans - is a reasonable number to strive for over time.
If you have very few accounts, scoring models may have difficulty calculating your score. In general, a "thin file" is four or fewer accounts. It's harder to score high with a thin file than a larger one, and lenders may also view thin files as riskier.
Why should you have more than one credit card?
Many people today have more than one credit card-but is it a wise choice? A greater number of cards provides more flexibility (and rewards!) than a single card can, as long as you can afford to manage the responsibility of keeping track of them all. Before you choose a number of cards for your wallet, you need to consider how you'll balance your overall debt load, your credit score health and your lifestyle needs.
Effects on Your Lifestyle
It is possible to have a separate credit card just for online shopping. Tracking your spending and protecting yourself against identity theft can be achieved by using this method.
If you transfer your credit card balances to a new card with a lower APR or a promotional rate, you may save on interest charges.
When traveling abroad, you can carry an extra credit card as a backup. You can use this if your primary card is not accepted where you are traveling.
Reward points can provide a valuable advantage. Your choice of credit cards may depend on the different rewards each offers. This allows you to earn the best rewards in various categories. Using a private-label card may give you the best benefits at your favorite retailer, but if you shop everywhere else, use your travel rewards card to earn points toward the next vacation.
If one of your credit cards is lost or stolen, you have a backup. In cases where it takes more than a day to get a replacement card, it is helpful to have a second card.
Effects on Your Credit Score
Multiple credit cards may negatively affect your credit score, which is probably one of your major concerns. Having more than one credit card may seem like a disadvantage, but it can improve your credit score because it makes it easier to maintain a low credit utilization ratio.
If, for example, you have one credit card with a $2,000 credit limit and you charge $1,800 to it each month, then your credit utilization ratio is 90%. A high credit utilization ratio will negatively impact your credit score.
Most credit experts recommend that you should not use more than 30% of your available credit on any one card at any time if you want to improve your credit score. It is much easier to keep your credit utilization rate low if you spread your $1,800 purchase across multiple cards. FICO's model uses this ratio only as one of the factors in calculating your credit score, but it accounts for 30% of the score. Only your payment history is more heavily weighted, at 35%.
To improve your credit score, FICO warns against opening accounts you don't need just to increase your overall credit limit. Increasing your credit limits at these rates can impact your ability to save and invest.
Did you know?
The average American has 4 credit cards, according to the Experian Consumer Credit Review.
Does applying for a credit card hurt your credit score?
When you apply for a new credit card, the issuer will check your credit history to determine if you're a suitable candidate. This is known as a hard inquiry on your credit. Your credit score will only drop by a few points if you make a single hard inquiry. However, the more hard inquiries you have, the more likely your credit score will go down. That could pose a problem, especially if you are applying for a large loan, such as a mortgage.
Hard inquiries have a small and relatively short-lived impact, but applying for multiple credit cards simultaneously has downsides. Multiple credit card applications in a short period of time can be interpreted as a sign of credit risk. All these hard inquiries add up. If you space out credit applications about six months apart, multiple hard inquiries will not affect your score.
How Many Credit Cards Is Too Many?
Even two credit cards may be too many if you can't pay your bills, you don't need them, or you don't plan to use them.
You may improve your credit score by getting a new credit card if you lower your total credit utilization ratio, but if you get many cards in a short period of time, you could damage your credit.
Having a large number of credit cards can also make you look risky to lenders and lower your credit score. Even if you have all your credit cards paid off, the mere fact that you have so many open lines of credit can make you appear as a potential risk to the next lender.
There is no absolute number of credit cards you should have, but it's best to hold only the cards you need and are justified in carrying based on your credit score, ability to pay back balances, and rewards goals.
What Are the Risks of Having Multiple Credit Cards?
If you are not careful, having several credit cards can do more harm than good, even though there are some clear benefits. Consider the following potential pitfalls.
Having a lot of credit cards may result in overspending. Having more available credit increases the amount of credit card debt you can accumulate. If you've overspent in the past, high credit limits could lead to you returning to bad habits. Then fewer credit cards, or even none at all, might be the better option. You can limit your spending by treating your credit card like a debit card and only spending what you can afford each month. Furthermore, it's always a good idea to create and adhere to a budget to prevent overspending. Paying your bills in full every month is the best way to avoid interest charges.
It can be difficult to organize an array of cards. When you have many credit cards in your rotation, it can be tricky to keep track of their due dates and balances. In the event that you miss a payment, you may be charged a late fee and, possibly, a penalty APR, which will increase your debt. Likewise, if you're overdue by 30 days, it can damage your credit. You may be able to choose a different due date with some credit card issuers, so you can keep your payments all in the same timeframe. You can also set up automatic payments to avoid late fees. To prevent overdrafts and returned payments, make sure your checking account always has a buffer.
Annual fees can also make it costly to keep multiple credit cards. The cost of holding on to a lot of cards with annual fees can add up quickly. Make sure you are getting enough value from each card to justify its annual fee.
How Long Should You Wait Between Card Applications?
If you want to apply for an additional credit card, you don't have to wait a certain amount of time. Depending on your situation and credit history, the proper amount may vary:
If You Have a Limited Credit History
When you're just getting started in building credit, having a second credit card can improve your credit utilization ratio -- how much of your available credit is being used -- and provide another opportunity to establish a good payment history. It is possible that these benefits outweigh any negative implications of a second hard inquiry. To be safe, it is a good idea to wait between applications for three to six months.
You'll want to make sure you apply for starter credit cards that are designed for people with your credit situation. If not, your application may be denied and a new hard inquiry will be added to your credit report.
If You're Rebuilding Your Credit
When you are trying to rebuild your credit, every card you apply for will need careful consideration. If you are in the process of rebuilding your credit, waiting several months between card applications may be best. Furthermore, if you are behind on payments on another credit account, adding new credit cards will not help much in the long run. Consider other credit improvement options, such as paying down debt to help lower your utilization ratio. After you've improved your credit, you may wish to consider applying for a new card.
If You've Been Denied Recently
As hard inquiries happen during the application process, your credit score will be lowered whether you get approved for the credit card or not. If you've been denied recently, think twice before applying again. Before reapplying, take a good look at your financial situation to see if you need to make any changes.
You should also make sure the cards you apply for are appropriate for your credit score. You can obtain customized offers online based on your credit score with just a soft inquiry, which won't damage your credit. This doesn't ensure approval, but it can help you focus on cards where your approval chances are higher.
If Your Credit History Is Well-Established
If you have used credit for a long period of time and have an excellent credit history, the impact of two or three inquiries in a short time period is unlikely to be as hard on your score.
The benefits of getting another credit card may outweigh the drawbacks if you don't have problems managing your existing cards, if you're staying within your budget, and if you are paying your bills in full each month.
Tips For Managing Multiple Credit Cards
It's important to remember that having multiple credit cards doesn't necessarily hurt your credit. Using established credit cards at least every few months is beneficial to your credit report. Keeping these simple tips in mind will help you maximize the value of your cards:
Pay on Time
Always pay on time. Managing multiple accounts online can be helpful when you have multiple cards. You can set up automatic payment reminders to make sure that you don't miss any payments.
Be Mindful of Available Credit
Be careful not to use all your available credit. Limit your usage to 30 percent.
When you get a new credit card, be sure you can manage it before applying for another. It is wise not to add another card until a set period has passed, such as 12 monthly billing cycles.
How to Choose the Best Credit Card
In order to find the best credit card, it is important to know yourself and what you want.
Listed below are three factors that will help you select a credit card:
Your Credit Score
The minimum FICO® score for most rewards cards is 670, which is considered excellent or good credit. In order to prevent disapprovals, be sure to check your credit before applying for certain cards. Consider cards suitable for fair credit or poor credit if your score is below that level.
Your Spending Habits
Understanding where you spend most of your money while comparing rewards cards will help you maximize your earnings. So that you can take advantage of all the rewards you earn, it's best to pick your cards based on the rewards you'll earn at the places you spend.
Make sure to consider whether you prefer the simplicity of cash back or the potential value of rewards or points cards. You should also consider whether you prefer one card over another in terms of annual fees and other features.
Get expert financial advice
Finding the right financial advisor has never been easier. In just 5 minutes, we'll get to know you and the kind of help you're looking for.