Credit cards are a hotly debated topic in the personal finance world. Some money gurus like Dave Ramsey don’t really recommend credit cards because they can encourage overspending, especially if you have a high credit limit.
However, using credit cards responsibly can help you earn rewards and build good credit, which makes it easier to take out loans for major purchases like buying a home or car. But how many credit cards should you have? Is one enough or should you aim for several? Let’s dive into this question below.
What Is The Right Number of Credit Cards?
First I thought I’d share how many credit cards I have. Right now I have one credit card of my own and share one with my partner. My partner also has three solo credit cards including one store card.
We’ve both been trying to sign up for a new credit card every year to build our credit files. Although you can apply for more than one credit card per year if desired, it’s better to wait at least 12 months between applications. Applying for new credit can ding your credit score slightly, so it’s best to give it some time to bounce back. Plus you don’t want to have too many hard inquiries on your credit file at once because it can turn off lenders.
Now that you know how often experts recommend you wait in between credit card applications, let’s talk about how many credit cards you should have.
Having Five or More Active Credit Accounts Is Best
According to Nerdwallet, it’s best to have at least five active credit accounts. Having fewer than five open accounts actually puts you in “thin credit file” territory. A thin credit file basically means that you don’t have a ton of credit history, which makes it harder for lenders to assess your level of financial responsibility. However, keep in mind that your accounts don’t all have to be credit cards. In fact, lenders like to see a mix of loans and credit cards because it shows that you can manage different types of credit successfully.
Another issue with having a thin credit file is that you may also have a low credit limit. This can make it difficult to keep your credit utilization rate low. Your credit utilization rate is the percentage of your credit limit that you’re currently using. For example, if you have a $3,000 credit limit and a $300 balance on your credit card, your credit utilization rate is 10%.
It’s generally recommended that you keep this figure under 30%, but less than 10% is better if you want to earn a high credit score. Low credit utilization is easier to achieve if you have a higher credit limit, which you can often accomplish by signing up for more credit cards.
Technically I have a thin credit file because I only have a mortgage and two different credit cards, so I’m gradually trying to open more accounts. Although I have a good credit score, there’s always room for improvement! But I don’t want to go overboard and sign up for so many credit cards that I get overwhelmed and lose track of my payment due dates. Here’s why.
Late Payments Are More Detrimental Than Thin Credit
Ultimately late payments will hurt your credit score more than having a thin credit file. Payment history is by far the biggest factor that affects your FICO score, so it’s very important to pay your cards on schedule. Plus you don’t want to accrue late fees and interest charges because you forgot to pay your bill!
Although I can enable autopay to prevent mistakes, I still don’t want to sign up for more credit cards than I can handle. I think that juggling lots of credit card statements would make it harder to track my spending. I’d also have a harder time spotting fraudulent purchases if I had to watch out for them on half a dozen accounts.
Similar to most Americans, I think the sweet spot for me is about two or three credit cards. The average American has 3.84 credit cards and a credit limit of around $30,000. But you shouldn’t get penalized for having more credit cards than that as long as you use them responsibly.
Wrapping Up
Although I wish there were a straightforward answer to this question, there is no magic number of credit cards that will lead to a perfect FICO score. The right number of credit cards for you really depends on how many you think you can handle and pay on time.
It’s usually a bad idea to cancel credit cards because it lowers the average age of your accounts, which can cause your credit score to drop. So don’t take on more credit cards than you can chew with the idea that you can just cancel them later! On the flip side, remember that signing up for a new credit card will lower the average age of your accounts as well.
You should also avoid signing up for too many credit cards with annual fees. Although annual fee cards usually offer better rewards, having too many of them can be a financial drain in my experience.
How many credit cards do you have? What do you think is the ideal number of credit cards? Share your thoughts in the comments!
Read More
Why I Stopped Using Credit Cards
Can You Achieve a Perfect Credit Score?
What Happens To Your Credit Card Debt When You Die?
Vicky Monroe is a freelance personal finance and lifestyle writer. When she’s not busy writing about her favorite money saving hacks or tinkering with her budget spreadsheets, she likes to travel, garden, and cook healthy vegetarian meals.