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How Many Credit Cards Is Too Many?
Credit can be a confusing topic; too much of it and you can place yourself in a precarious position. Conversely, if you have too little, you will undoubtedly find yourself struggling with day-to-day tasks such as renting cars, hotel rooms, or getting a mortgage. That’s why making sure you use credit efficiently right from the start (around age 18) is so vital. Credit cards can be an excellent way to build credit when used correctly, but too many people think the answer is to take out as many as you can, max them out, and then make payments regularly. Truthfully, the answer to exactly how many credit cards you need isn’t quite that simple.
How Credit Cards Impact Your Score
Credit cards are one of the primary reporters for national credit report agencies like TransUnion, Experian, and Equifax. Your creditors report both negative and positive payment activity to these credit bureaus. This process can be a double-edged sword. It means that owning a credit card is a very effective way to raise your credit, but it also means that making a few mistakes with payments can be extremely damaging.
With multiple credit cards, you effectively raise the risk of financial trouble, but may also raise your credit over time, too. The key is in how you use the credit in the first place.
When used correctly, an unsecured or secured credit card can effectively restore your credit within around two years. When used improperly, it can bring your score down much, much faster.
Even Applying for Credit Impacts Your Score
Understand that even applying for a credit card impacts your score. The occasional application – say two to three applications per year – isn’t likely to have enough impact to hurt your credit score. But being denied for multiple cards within a short period of time can. Verify your score before you apply and then ask your potential new credit card provider for their minimum score requirements before you apply. A good option to avoid failed applications is to check if prequalification is available.
Don’t forget that multiple credit card applications within a short amount of time, whether you are approved for all of them or denied, can affect your score negatively. The good news, though is that “new credit” where credit inquiries are concerned, account for only 10% of your overall FICO score, while “credit utilization” has a much more significant impact of 30% on your score.
Understanding Credit Utilization
Credit utilization, which is responsible for 30% of your FICO score, is a ratio between your total available credit limit and actual debt on the card. For example, if you have three credit cards with a $600 limit on each, your total credit limit is $1,800. If you have a $200 balance on each card, your total balance will be $600 and your credit utilization for the three cards is 30% ($600/$1800).
The ideal percentage for credit utilization is under 30% -- even better if you can keep it under 10% to grow your credit score faster.
This is an example where having more credit cards can be helpful. More credit cards mean a larger total credit limit, which makes it easier to keep a low credit utilization.
The Debt-to-Credit Ratio
Your debts (including credit) should always fall within or near the ideal debt-to-credit (DTC) ratio. The average middle-class American has a DTC of approximately 33 percent, meaning that 33 percent of their total income is debt. This includes credit cards, rent, leases, vehicle payments, and any other form of credit you hold. But maintaining a 33 percent ratio isn’t ideal; realistically, the lower your DTC, the better. This specific rating just happens to be the tipping point where most lenders will consider you a higher-risk client.
Deciding What You Need
Before you apply for credit, it is very important that you review your current financial status to evaluate whether you’re in a place where credit is right for you. There is a societal tendency to pick up as many credit cards as possible and then shuffle the money around card-to-card. In most cases, this isn’t wise. It’s a strategy used by those who may already be struggling financially and need a soft pad between paydays.
Not only does this strategy not benefit your credit, but if you get into a situation where your financial situation worsens, you could suddenly find yourself unable to pay off multiple cards. Multiple late payments can and will lead to heavy penalties on your score.
Determining whether or not you can support one or more credit cards requires blunt self-honesty. Can you reasonably pay off the maximum payment on all chosen cards if it comes down to it? Are you already financially stable, but just seeking to expand your credit? These questions will impact your decision.
Choosing Your Card(s)
Once you have determined whether or not it’s appropriate for you to take out credit, it’s time to decide on which card(s) you need. It is far better to choose one high-limit credit card with a decent interest rate than multiple credit cards with higher interest rates, as you will almost always end up paying more in fees and interest on multiple cards.
If you do decide to pick up multiple cards, spread out how often you apply for credit. Choose a single credit card and use it sparingly, paying the amount off each month, for at least six months before you apply for another. If you already have more than three credit cards, be sure to use them efficiently each month. Inactive credit accounts don’t benefit your credit, so use them to purchase necessities and then pay the cash balance off immediately.
Card Features
Avoid high-interest reward cards when possible; although it may seem like it pays off, if you spend a fair amount each month, you’re probably spending more on interest than what the reward itself is worth. It’s best with rewards cards that you pay your balance off every month in order to get the most value out of your rewards.
One of the best low-interest cards is the Simmons Bank Visa® Platinum card.
| regular APR | |
excellent required
Excellent Credit Required - Applicants that do not have excellent credit will not be approved
Low 9.25% variable standard purchase APR and platinum benefits
No balance transfer fee for balances transferred in response to this online offer
No Annual Fee
If you’re building your credit, or you’re a student with very short credit history, try a student or secured card instead. These cards might offer higher interest rates but are understanding of your situation if you don’t have any credit established yet. Over time, you can build your credit score with these cards and graduate to options with better features.
| regular APR | |
- earn 5% cashback on rotating quarterly categories
- 1% cashback on all purchases
- double cashback for first year
- $20 cashback annual bonus if your GPA is 3.0 or greater
no credit required
no annual fee
no credit needed
5% cashback on changing categories
double first year cashback
| regular APR | |
bad credit / no credit required
no annual fee
bad credit or no credit
25 days grace period
$49-$200 security deposit
If you already have excellent credit, but you want to increase the amount of credit you have available, it’s best to look for high-limit cards with the Gold, Platinum, or Silver designation. Considered “luxury” cards by most, they often have lower interest rates and more membership benefits as a reward for your lower risk status.
Chase Sapphire Preferred is a great example of such card - not only offering a high limit, but also great rewards rate and sign up bonus.
| regular APR | |
- earn 2x points on travel and dining out
- get 50,000 bonus after spending $4,000 in the first 3 months
- get 5,000 bonus miles after adding authorized user in 3 months after account opening
- 25% more in travel redemption
good credit required
$95 annual fee, waived for the first year
or no annual fee for basic Sapphire card
2x points on travel and dining
1 point per dollar on all other purchases as usual
the card is made of metal
In a world where more people than ever rely on credit, your credit-worthiness matters. There are no easy answers to the question of exactly how many credit cards you should have; at the end of the day, the number depends greatly on your personal details. Make sure you only acquire the card accounts that you can manage responsibly and pay off every month. If you credit card payments are becoming difficult to manage, it’s time to consider whether you really need any more cards.
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