How Many Credit Cards Should You Have?

Credit cards offer convenience and help you build credit. The question is, should you stop at one credit card, or is it beneficial to sign up for several?

The short answer is “it depends.” Having more than one credit card can give you access to greater rewards, but it can also lead to risky spending habits. Multiple cards to your name can boost your credit score, but opening too many accounts at once can drag it down. Let’s explore the pros and cons.

The Effect on Your Credit Score

Seven out of 10 American adults have at least one credit card, and the average person has three or four total. However, whether you have one credit card or a dozen, your credit score won’t change much. This is because the number of credit cards you have is a minor factor in determining your score as a whole. A far more critical aspect is how you use your credit cards.

Payment history is the single most influential factor, making up 35% of your credit score. Your total debt owed is the next most important, comprising 30% of your score. The final factors are the length of your credit history (15%), any new credit you take on (10%), and the type of credit you use (10%).

The number of credit cards you have falls into this final, smallest weighted category. All lines of credit are lumped together here, including mortgages, auto loans, student loans, and store accounts. In general, the more lines of credit you have (whether open or closed), the better. Having zero to five accounts is considered “poor,” and 22 or more is considered “excellent.”

Simply owning more credit cards won’t make your score go up or down significantly, but you should avoid “churning” cards. This is when you open and close several cards around the same time, which is never a good idea.

The Impact on Debt Utilization

Credit bureaus place significant weight on the amount of debt you owe. When expressed as a percentage of your total credit limit, this is known as your debt utilization. The lower this ratio is, the better.

This is where having more credit cards can benefit your score. Since every new line of credit you open increases your total credit limit, adding another card to your wallet decreases your debt utilization — as long as you don’t use it to increase your spending.

For instance, say you spend an average of $500 a month on your only credit card, which has a $1,000 limit. This results in a debt utilization of 50%. Open a new credit card with a $2,000 limit, and suddenly your utilization drops to 17%. This is much better in the eyes of credit bureaus and lenders.

You can achieve a similar effect by asking your existing credit card company to increase your limit to $3,000. The total credit limit is what matters most here, not the number of credit cards. In the end, the goal is to keep your debt utilization to 20% or less. Whether you need one or multiple cards to achieve this is relatively inconsequential.

The Available Benefits

Credit cards may be convenient, and they’re important for building credit, but that’s not all. The right cards can also garner valuable rewards. Every credit card company has its own programs and benefits for account holders. Some offer high cash-back rewards on gas and groceries, while others let you rack up travel points when you eat out. Valuable features such as price protection and rental car insurance are also available on some cards, but not others. If you can keep track of which cards offer what benefits and use them at the proper times, you can maximize your rewards to the fullest.

Having Too Many Credit Cards Can Drag You Down

The world record holder for the largest collection of valid credit cards is Walter Cavanagh, with 1,497 credit cards, a $1.7 million credit limit, and a near-perfect credit score. While Mr. Cavanagh might be able to juggle this many accounts, we do not recommend this practice. Here are some of the downsides of having too many lines of credit.

Opening New Accounts Affects Your Credit History

Don’t rush into opening several new credit cards back-to-back, no matter how lucrative the offers, because your credit score will take a hit in two ways. First, each new account results in a temporary drop of a few points, so pace yourself.

Second, new cards reduce the average age of your credit history. If you’re in the market for a significant loan soon, hold off on getting a new credit card so your score doesn’t take a hit at an inopportune time.

Having Multiple Cards Can be a Hassle

Keeping track of which card to use at what time can be more of a headache than it’s worth. Plus, even with automatic payments, it’s easy for one account to slip through the cracks and surprise you with a bank account withdrawal you weren’t expecting.

Still, you shouldn’t close old, unused accounts willy-nilly. These add to your credit limit and the length of your credit history, both of which bolster your score. If the card has no annual fee, there’s no harm in keeping the account open and simply not using it. Just be aware that some companies close accounts that remain idle for too long, so you may need to use it on occasion to prevent this from happening.

A Higher Overall Credit Limit Could Lead to Increased Spending

If you’re not careful, having the ability to borrow more could trick you into spending more, especially if you’re chasing rewards for minimum spend requirements on new cards. You’ll need to be extra responsible if you have more than two or three credit cards, both in terms of monitoring what you spend and making sure you don’t forget to pay off all your accounts on time.

Based on this information, you may decide that opening a new credit card could be advantageous for your situation. Whether you’re hoping to earn valuable rewards or build your credit from the ground up, one of the credit cards offered by Connexus may work for you.