Credit cards can be incredibly valuable financial tools. As a method of payment, they offer greater convenience and security than cash, checks, and even debit cards. And as a means of finance, a credit card can provide a short term line of credit with competitive interest rates.
But at the same time, there is some controversy around how many credit cards are too many, and how many could be not enough. For example, there are numerous cases of people who have gotten into debt, in part by having too many credit cards. Yet credit cards can be a valuable tool to build credit.
How many credit cards are enough?
Your credit score is essentially a summary of the information in your credit report. Some people make the mistake of trying to improve their credit scores by avoiding credit. But in order to have the highest credit score, you need a credit history with multiple accounts. Credit cards can be a vital part of your credit history, especially if you don’t have other accounts such as car loans, student loans, or a home mortgage.
If you just have one or two credit cards, it may not be enough to establish your credit history and have as high of a credit score as you would like. Having three or more credit cards can help you to achieve this goal, but only if you use them responsibly. This means you must always make at least the minimum payment on time, each month.
You also need to have as little debt as possible. Having additional credit cards will decrease your debt to credit ratio, for a given amount of debt. Having a low credit ratio is one factor that can help your credit score. In fact, the best way to manage your credit cards is to avoid all debt and interest charges by paying your statement balance in full each month.
How many credit cards is too many?
If you can build a credit history and increase your credit score by having several credit cards, why not apply for as many as possible? There are several reasons why you may want to limit the number of credit cards you have. First, the more credit cards you have, the more time and effort it will take to manage them responsibly. Also, having additional credit cards will not help your credit score if you often make late payments.
In addition, some credit card users will be tempted to overspend or get into debt when they have been extended a large line of credit across several credit cards. If you may overspend or incur debt, then you should limit your use of credit cards, rather than try to have as many as possible. Finally, you don’t want to apply for too many credit cards in a short amount of time. When you apply for many cards, the credit scoring formulas can interpret it as a sign of possible financial distress, and your credit score can suffer.
Making the right decisions for your needs
The right number of credit cards is a number that best helps you to achieve your goals. If you are new to credit, and are trying to learn how to manage your accounts responsibly, then you shouldn’t apply for multiple credit cards at first. Take some time to learn about your credit card and get the hang of it before applying for more.
But if you already have some experience managing your credit cards, and are looking to increase your credit history and improve your credit score, then you should consider having two or three accounts open and in good standing.
If you are a very experienced credit card user who is trying to maximize the rewards you earn, then it may be to your advantage to have more than three credit cards, each with its own specific purpose. You could have some cards that offer benefits when you travel, and others that features additional rewards at certain categories of merchants. So long as you can manage all of these accounts responsibly, don’t go into debt, and don’t overspend, then you can enjoy all of these benefits. And by building an extensive credit history, you will ensure that you have an excellent credit score.
But what about the average credit card user that doesn’t have significant debt, and isn’t terribly serious about earning rewards. These credit card users will be happy with three to six credit cards. If some are part of the American Express payment network, they will want to have some that are part of the Visa or MasterCard programs for use where American Express is not accepted.
Bottom line
There is no ideal number of credit cards you can have. Instead, the right amount will vary based on your needs and ability to manage your accounts responsibly.