“How many credit cards should I have?”
It’s a common question and one that doesn’t have a simple answer. There are benefits to having more than one card, but there are also drawbacks. As you increase the number of credit cards in your wallet, you might start to run into some issues. So how do you know when it’s time to cut back on the number of cards?
Should You Have Multiple Credit Cards?
One of the easiest ways to start building credit is by opening a credit card. It allows you to expand your available credit, earn a wide array of credit card rewards and points, and show lenders that you’re able to repay debts. However, the number of credit cards that you have is entirely up to your personal preference, lifestyle, and financial history.
Many people find that having multiple credit cards is beneficial. Having more than one can help you manage your spending by dividing your expenses across different cards depending on if they’re essential or emergency purchases. By using more than one card, you can prevent over-the-limit fees and maintain a healthy credit utilization of less than 30%. Finally, you can improve your credit scores by diversifying your available credit.
Having multiple credit cards also comes with some drawbacks. Since you’re essentially managing more than one account, it can easily become confusing and overwhelming to manage all of your credit card payments and rewards programs. It’s easy to lose track of your spending on each card if you aren’t diligent about reviewing statements or paying attention to due dates.
Credit card accounts also play a significant role in your credit score. This is why it is important to consider whether you can manage more than one. Your payment history and credit utilization ratio are a couple of the most influential factors that determine your credit score. Creditors want to know that you can pay your bills and debts on time, as well as that you keep your credit utilization low, or don’t rely on debt too heavily to survive.
In other words, it is generally okay to have multiple credit cards as long as you are financially responsible. You should feel comfortable and willing to take on the risk of opening however many credit cards that you choose to, as your credit history will play a significant role in your credit score and the access that you have to loans, credit cards, and other financial products and services for the foreseeable future.
How Many Credit Cards Should You Have?
There is no magic number. The number ultimately depends on your financial needs and preferences. A case can be made for having at least one credit card. Credit cards can provide added security and convenience when paying bills and building your credit, which debit cards and cash do not always have.
However, the number of credit cards that you end up applying for and using depends more heavily on why you want one in the first place. If you need a card to help you kickstart your credit-building journey, one might suffice until you get in the groove of using and paying off your credit card balance.
On the other hand, you might want to apply for multiple cards to take advantage of different perks, such as cash back, entertainment and dining points, and travel rewards. It’s up to you to decide what your credit journey will look like when it comes to credit cards.
Is It Okay to Not Have a Credit Card at All?
If you’re just starting out on your credit journey, you might not have a credit card — and that’s okay.
It’s also important to remember that not everyone needs or wants one. Perhaps you don’t qualify for the one that you have your eye on. Maybe the cost of having and using a credit card is too high in terms of interest rates and fees, or you don’t trust yourself with debt. It might be best to steer clear of a credit card altogether — at least for the time being.
When the time does come to start building (or even rebuilding) your credit, there are ways that you can use your credit accounts in a controlled and responsible way.
Secured credit card
When you have little to no credit, you likely won’t be able to apply for top tier credit cards with the highest points and best rewards. That’s okay — you’ll get there. To start, you can apply for a secured credit card. A secured credit card is a type of card that requires an upfront security deposit, and it is usually easier to acquire for people with little to no credit history.
With secured cards, the amount of the deposit varies depending on your issuer and other factors. The deposit typically covers your credit limit and is held as collateral in case you default on your payments. For example, if you put $200 down to secure your account, then you’ll only be able to spend up to $200 until the deposit is repaid.
Like regular, unsecured credit cards, secured credit cards also require you to make payments every month. If you carry a balance from month to month, you are still responsible for the principal balance and any interest that accrues. You are also responsible for keeping a healthy credit utilization. In general, you shouldn’t spend more than 30% of your total credit limit.
The difference between secured credit cards and unsecured credit cards — which are probably the standard cards that you think of — is that unsecured cards have lower levels of risk because they come with built-in protections that unsecured credit cards don’t offer. This makes them more manageable to use and repay.
Another way that you can make your thin credit file a little thicker is by becoming an authorized user on someone else’s account. This is not an option for everyone, but being added to a trusted, responsible individual’s credit account can actually boost your own credit scores. If you’re added as an authorized user and both you and the person use credit responsibly and make on-time payments, you will both start to see an increase in your scores.
When taking this route, check with the lender or credit card company to make sure that they report account information on authorized users other than the account holder. Some lenders do not.
Some billers, such as utilities companies and cell phone providers act as data furnishers. A data furnisher is a creditor or other business that reports consumer information to consumer reporting agencies, such as credit bureaus. Not all billers act as data furnishers, but if yours does, you can start to see your payments impact your credit score — for better or for worse.
This is why on-time payments to your billers are critical. To ensure that your bills are paid on time:
- Make a list of your bills
- Set payment reminders
- Organize your bill-paying space
- Reorganize your due dates
- Set a bill-paying date
- Consider automatic payments
- Review your bills thoroughly as soon as they arrive
- Decide how you will pay
- Monitor your bank account to ensure the payment went through
When all is said and done, you’ll also want to make sure that your payments are reported accurately to the credit bureaus. A late payment could end up dragging your score down.
You can get one free credit report per year from each of the three major bureaus. Request your credit report at AnnualCreditReport.com.
Is There Such a Thing as Too Many Credit Cards?
If you’re able to responsibly manage a plethora of credit cards, then there is no such thing as having too many. Credit cards open a number of opportunities, including perks, points, and rewards. They can also assist with sizable credit score boosts, which lead to:
- Better interest rates and terms
- Higher likelihood of loan approval
- Access to better cards with lower fees
- Lower insurance premiums
- Stronger candidate for jobs, rentals, service providers, and more
Potential Issues With Lots of Credit Cards
However, the issue arises when your wallet begins to overflow with credit cards and you are no longer able to manage them effectively. This can lead to significant credit score damage, long-term negative marks on your credit reports, and loss of access to loans and other financial products and services.
Difficult to make on-time payments
As your number of credit cards grows, so does the number of payments that you have to keep track of and successfully make. With each new credit card that you apply for, that’s one more credit card issuer that you have to work with one, one more bill pay platform to log into each month, and one more payment to make. Make sure that you are up for the task.
Overextension of credit utilization
More credit cards also means more temptation to spend. True: As you increase your number of credit cards, you also increase your overall credit limit. And while this means that you might be able to spend more money, it also means that you have to be extra conscious about how much you are putting on each card and when.
No matter how many cards you have, you should keep your credit utilization ratio to no more than 30%. That goes for all of your cards together and each card individually.
So many credit cards, so little time
Keep in mind that each time that you apply for a new credit card, the credit card company does a hard inquiry into your credit file. Each hard inquiry knocks your credit score down several points. While the negative impact is temporary and can bounce back with on-time payments and responsible spending, you should try to avoid applying for too many credit cards in a short amount of time. It could have a larger impact on your credit score than you think, and it could also play a role in whether you get accepted for larger loans, such as a mortgage, in the near future.
Should You Have an Emergency Credit Card?
It’s important that you have an emergency fund at all times. In what form you want that fund to take is up to you, whether it is a credit card, savings account, or cardboard box shoved under your bed (not advised). You should keep at least six months worth of fixed expenses in an emergency fund, though this amount varies based on job security, family size, and other factors.
The benefit of having an emergency credit line is that it gives you access to more money instantly than a savings account or other fund might give you. If you do keep an emergency credit card, you should charge purchases to it regularly so as not to let it go inactive. Since this card will primarily be used for emergencies, it’s also important that you don’t forget to pay the bill on time. Hopefully emergencies will not be happening regularly; if they don’t, it can be easy to let this card fall by the wayside.
What to Consider Before Opening a New Credit Card
Opening a new credit card can be a big financial decision. You should make sure that you’re in the right position to do it. Start by asking yourself a few questions.
Why do you want the card?
Do you want the card for its perks and rewards, or do you need it for an alternate source of money? If it’s the latter and you’re desperate for cash, it’s possible that you will not be able to make on-time payments, or that you will overuse your credit limit. If you do, a new credit card could end up doing more financial harm than good. You might want to consider finding an alternative solution.
What does the card offer?
Many credit cards offer competitive, appealing benefits, such as cash back, entertainment and dining points, and travel rewards. Many of these cards also come with a hefty annual fee. Make sure that the credit card and benefits that you are after will actually benefit you — and make sure that the annual fee is worth it.
Have you applied for a number of other credit cards recently?
Each credit card application comes with a hard inquiry and a slight credit score decrease. Ensure that you are in a position to deal with the decrease for a short amount of time. You will begin to see your score increase over the next several statement cycles as long as you make on-time payments and keep your credit utilization in check.
If you are expecting to apply for a large loan, such as a mortgage or other credit lines in the near future, you might want to hold off on opening a new credit card. This will ensure that you keep your credit score as high as possible to increase your chances of getting approved for the loan and locking in the best rate possible.