There really isn’t a magic number of credit cards everyone should have. More credit cards could actually boost your credit score, which is important for getting loans, saving on insurance rates, and even getting a job. Having multiple cards can also be more risky. On the other hand, not having enough credit history can set you back. Here’s what you need to know.
Holding several credit cards is fine for your credit score
The average number of credit cards Americans own is two to three, according to The Motley Fool. Last year, FICO found that people with high credit scores (800+) tended to have an average of three open cards. This could be because people with higher credit scores are able to open more credit cards, though.
While there can be negative aspects to owning multiple cards besides just your credit score (more on that in a bit), generally speaking, your credit score won’t go down just because you have several cards. The exception is if you’re opening and closing a bunch of cards at once (“churning” cards) to maximize the rewards you earn from various cards.
More credit cards means higher credit limits and (possibly) better debt utilization
The number of credit cards you have does make a difference for one of the biggest factors: Your total debt owed, as a percentage of your credit limit. Since every new credit card increases your total credit limit, adding another card decreases your debt-to-credit ratio (as long as you don’t add more debt). For example, if you owe $500 on one credit card with a $1,000 limit (50% utilization) and open a new credit card with a $4,000 limit, that would make your overall utilization 10% ($500 out of $5,000). And that’s much better in lenders’ and credit scoring agencies’ eyes.
A greater variety of cards could offer more benefits
Many people use credit cards not just for the convenience but for the rewards (although finance experts don’t agree on whether chasing rewards is worth it). You can use one card that has a high cash back for gas and groceries, for example, and a second one that rewards you with travel points when you dine out or travel. This maximizes the rewards you can get.
Besides those rewards, valuable features like price protection, travel insurance and car rental insurance might convince you to select a particular card. The fringe benefits, like travel credits, free checked bags on airlines, and airport lounge access, can also be compelling reasons to open a new card.
Opening new cards does affect your credit history
First, don’t rush in to open a bunch of cards every time you see attractive offers. Although opening new accounts, as mentioned above, tends to only cause a temporary drop of a few points, the new cards will also reduce the average age of your credit history (how long you’ve had your credit accounts). That’s not as significant as how you well you pay your debt either, but if you’re going to be in the market for a major loan soon, it’s something to consider, as these small hits can in turn reduce the interest rate you’re eligible to get.
More cards are a hassle to maintain
To prevent credit card companies from potentially closing your accounts due to inactivity, you’d need to regularly use each of your cards—when you have more than a few, that can get unwieldy. You don’t want your account to get closed, because that couldgreatly impact your score since it reduces your overall credit limit and could reduce the total age of your account history.
Also, even with automatic payments, it’s just harder to keep track of dozens of cards.
More cards and higher credit limits could trick you into spending more
If you’re not careful, you could end up overspending (especially if you’re chasing rewards and trying to meet minimum spend requirements). And overspending could catapult you into a cycle of struggling to pay your monthly statement in full, and if balances start building up, that’ll definitely reduce your credit score.
However, if you’re responsible with your spending, pay your bills in full each month, and keep your balances low, additional cards won’t likely hurt and they could even help your credit. How many is right for you really depends on your comfort handling and managing them.