Having more than one credit card is typical for Americans, but how many are too many? The answer to that question is not simple. Determining the right number of credit cards for your financial well-being requires assessing a few factors, and the answer to this question varies from person to person.
GOBankingRates has created this guide to help you determine the optimum number of cards for you. Whatever number of credit cards you decide to have, the most important thing is to make your credit card payments on time.
- How Many Credit Cards Should I Have?
- Does Having Too Many Credit Cards Hurt Your Score?
- How Does Opening or Closing an Account Affect Your Credit?
- Choosing the Right Credit Card
- How Many Credit Cards Are Too Many?
In 2019, 61% of Americans had a credit card, an increase of 8% since 2014. The average American now has four credit cards, according to an Experian report on consumer credit card debt. Part of this is due to a shift in the process lenders use to determine creditworthiness.
The number of credit cards you have or should have is less important than how you use them. Having more than one card gives you access to more credit, and you might be tempted to spend more. This can lower your available credit and affect your credit utilization score. This, in turn, factors into your credit score.
The average credit card debt for 2019 was close to $6,200, according to Experian. At the same time, credit card delinquencies have gone down and FICO scores have increased — with the greatest gain in the “exceptional” credit category. This suggests that consumers are managing their credit better. But with interest rates ranging from single to double digits, depending on the borrower’s credit, debt can still be expensive.
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It’s essential to pay your credit card bill on time because late payments can negatively affect your credit score. In cases where the temptation to spend is too great when you have more than one credit card, you might find that you cannot pay your bills on time. In fact, three out of four people with multiple credit cards carry balances greater than the average. A person’s ability to keep up with monthly payments factors as much as 35% in their FICO scores.
Another aspect of your credit score you should know about is your credit utilization rate, which is calculated by taking the amount of credit you’re using and dividing it by the amount you have available. For example, say you have $10,000 credit available on two cards total and a balance of $5,000 on one. Your credit utilization rate is 50% because you’re using half of your total available credit.
Beware of closing unused accounts. Using the same example as before, closing the zero-balance account would cause your credit utilization ratio to jump from 50% to 100%. Having a low credit utilization rate can make you a more attractive borrower and can also help you improve your credit score. You might also later change your mind and decide to open another credit card account, which can affect your score more.
When you apply for a credit card, the bank or company will make a hard inquiry on your credit report. This could reduce your credit score a few points because looking for new credit can equate with higher risk, according to myFICO, which provides FICO scores and credit reports. But having long-term credit can reflect positively on your credit report if you have established a record of making on-time payments and using your credit responsibly.
Learn More: Is a Joint Credit Card Right for You?
Another factor to consider when deciding how many credit cards to have is the type of credit card you carry. Certain perks and rewards programs can help you save money and pay down your existing debt if you use them responsibly.
If you carry a balance on your credit cards, you’re not alone. American consumers racked up $26 billion in credit card debt in the fourth quarter of 2018. More than half of Americans with credit cards carry a balance on them, and most of them expect it will take more than a year to pay it off. Look for a card with a low interest rate so you can pay off your balance faster and pay less in interest overall in the event you fall into this category.
A credit card that offers rewards is a good option if you charge a lot regularly and pay off your bill every month. Some cards offer cash back based on a percentage of how much you charge, and others give you points. Choosing a rewards credit card enables you to get something back from purchases you would make regardless.
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The question to ask might not be “How many credit cards should I have?” Having a lot of credit cards doesn’t directly affect your credit because the number of cards you carry is not a factor in calculating credit scores. That said, your credit card collection can be a sign that you need to take a closer look at your finances.
Once you know how to get a credit card, think carefully about the way you’ll use it and why you want to apply for credit. Applying for a card because the ones you have are maxed out indicates you should probably take a look at your spending habits. Using your credit cards as an extension of your income and not being able to pay down your balances are signs you’re not living within your means. This kind of spending pattern can make it difficult to get out of debt.
Base the number of cards you carry on your personal financial situation. A good guideline is to make sure you can keep each card’s balance within a manageable range and make more than the minimum payment every month. Your credit cards should work for you, not make you work for them.
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This article has been updated with additional reporting since its original publication.