How Many Credit Cards Should I Have? Top Tips & Pros and Cons of Having Multiple Credit Cards
“How many credit cards should I have?”
You’re not the only one asking this question. Many people, especially those that are just starting out in the world of credit, are scratching their heads thinking the very same thing.
Is it good to have multiple credit cards? Isn’t it risky to own so many cards your wallet can barely breathe? Is there an ideal number of credit cards to aim for?
These are all valid questions. The answers, however, aren’t so straightforward. Having multiple credit cards can actually either improve your credit score or harm it, depending on how you use them.
Before you apply for a second credit card, make sure you know all the ins and outs of how to manage more than one card. Otherwise, your credit rating might end up being negatively affected, and obviously, no one wants that.
Let’s jump in!
Why You Should Have Credit Cards at All
Before we fully dive into the complexities of managing many credit cards, it’s essential to understand the basics. Why should you even apply for a credit card to begin with? Isn’t a debit card enough?
While debit cards are a valid and easy way to manage your finances, they don’t actually help you build or improve your credit score. Your credit score is a number (usually between 300 and 850 where 300-579 is poor and 800-850 is excellent according to the FICO score) that shows potential lenders whether you’re reliable enough to borrow money.
If you’re planning on getting a mortgage, a business loan, or a good credit card in the future, building your credit is absolutely vital.
This is where credit cards come in! Credit cards are the easiest way to build your credit score, as they allow you to show that you’re capable of repaying your debt on time and in full each month.
Plus, they offer some great cashback and points rewards. Who doesn’t love to get rewarded for shopping?
Having Multiple Credit Cards: Is It Good? Is It Bad?
Okay, here’s the deal.
While the average American owns 4 credit cards, there is actually no clear-cut answer to how many credit cards you should have to get an optimal credit score. This is because your credit rating largely depends on how you manage your cards, not how many you have.
Namely, the FICO score focuses on 5 main factors:
- Payment history (35% of the FICO score)
- Credit utilization (30% of the FICO score)
- Length of credit history (15% of the FICO score)
- Types of credit (10% of the FICO score)
- New credit (10% of the FICO score)
Having multiple credit cards impacts all of these in different ways.
What’s more, everyone has different spending needs and habits; if you’re twenty-one years old, chances are good that you will benefit from owning more credit cards differently than if you were in your forties.
For instance, managing different credit card types can help you build more varied types of credit, which boosts your credit score. On the other hand, applying for too much credit as a newbie can negatively impact how potential lenders see you and can decrease your overall length of credit history.
However, if you were in your forties and already had an established payment history on more types of credit, applying for more credit or another card wouldn’t be such a big deal. You’d likely already have proven you can effectively balance multiple credit cards, after all.
Sound complicated? Let’s unpack the pros and cons of having multiple credit cards step by step.
Pros of Having Multiple Credit Cards
Why have multiple credit cards?
While managing many credit accounts can seem risky at first glance, it’s actually extremely beneficial to your credit rating if you stick to some important rules.
Here are the pros of balancing multiple credit cards.
Lower Your Credit Utilization Rate
Your credit utilization rate demonstrates how much of your available credit you’ve used. You should always aim to use only 10-30% of your credit limit to keep the credit utilization score low.
If you want to spend more while also keeping your credit score excellent, having multiple credit cards is one of the best solutions out there. With multiple cards, you can spread your spending across different cards and keep the utilization rate low on all of them.
Maximize Credit Card Rewards
Owning many different credit cards offers a great benefit; you can maximize credit card rewards and get some amazing perks while shopping!
When choosing which rewards credit card to go for, you should consider what kinds of needs you have. For instance:
- If you love to travel, apply for a travel credit card and earn miles or points
- If you always shop at the same retailer, get a private label card and build credit while enjoying great discounts
- If you dine out multiple times a week, consider getting a tiered cashback card that includes dining in one of its higher reward categories
In order to get the most out of your rewards credit cards while shopping online, consider downloading a Chrome extension like Lever. Lever is basically your wallet’s personal assistant; at checkout, the tool automatically chooses which of your credit cards is best to use.
Build Different Types of Credit
Types of credit account for 10% of the FICO score.
Having many different credit cards boosts your rating by showing potential lenders that you can responsibly manage different billing cycles and payment structures.
Cons of Having Multiple Credit Cards
Of course, there are also cons to having multiple credit cards, especially if you’re not using them responsibly.
Let’s have a look at some of them.
It Can Be Hard to Manage All Your Credit Cards Responsibly
Payment history is the largest denominator of your credit score. Paying on time and in full each month is extremely important, and having multiple different credit accounts can complicate things.
If you want to own multiple credit cards, make sure to remember all your billing cycles and always have enough money to repay all your debt.
In general, it’s better to manage one credit card in a responsible manner than three different ones in a chaotic way.
New Credit Lowers Your Length of Credit History
At 15% of the FICO score, the length of your credit history is a vital aspect of building a good credit rating. The longer you’ve had your cards, the better.
When you open new credit, however, the overall length of your credit history decreases. This can negatively impact your credit records for a while.
Applying for New Credit Automatically Lowers Your Credit Rating
Every time you apply for new credit, a lender places an inquiry on your account, which means they’ve requested to see and examine your credit records before they decide to lend you money.
Unfortunately, each inquiry automatically lowers your credit score. While the number of points you lose is quite low, applying for too much new credit in a short span of time can accumulate and harm your credit rating in a more impactful way.
What’s more, applying for many credit cards at once is seen as risky behavior by lenders.
How Many Credit Cards Is Too Many?
There’s actually no limit on how many credit cards you can apply for. Similarly, there’s no clear answer to how many credit cards are too many.
It largely depends on your specific circumstances, such as:
- Your financial situation
- Your age
- Your credit history
- Your financial goals
- Your personality
Consider these two scenarios:
Fred is twenty-two years old. He has been using his first student credit card for six months and would like to spend more while keeping his credit utilization rate low. To do this, he’s applied for a new credit card.
George is fifty-six years old. His credit history goes back thirty years. He has been responsibly managing four different credit cards for decades. He would like to apply for a new cashback credit card in order to maximize rewards.
Even though George already has more credit cards than Fred, he’s proven himself to be a better candidate thanks to his long payment history and excellent credit score. Fred, on the other hand, has only had his first credit card for 6 months, and therefore seems to be the riskier choice.
How Many Credit Cards Should I Have: FAQ
Does having multiple credit cards build credit faster?
Having multiple credit cards can build credit faster because there is more information reported to the credit bureaus each month. The information has to be positive, however. Make sure to manage all credit cards responsibly.
Can too many credit cards hurt your credit score?
If you don’t repay all your debt by the due date and in full each month, having multiple credit cards can harm your credit score. If you’re being responsible, however, having different credit accounts can actually boost your credit rating.
Does having multiple credit cards help your credit score?
Yes, having multiple credit cards can boost your credit score as long as you’re able to repay all debt on time.
There are many excellent credit card types out there, and using multiple credit cards ensures that you’re maximizing rewards and keeping your utilization rate low. What’s more, having a varied credit portfolio can actually help your credit rating.
Before you decide to apply for new credit, however, be certain that you can manage all your cards in an organized and conscientious way.
Once you do have different rewards credit cards, consider plugging in Lever. Less stress, more shopping!