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- How many credit cards you should have depends on your financial and personal goals.
- Having multiple cards can come with a lot of benefits, but also added risk.
- Different types of credit cards have different uses ranging from building credit to collecting rewards.
Credit cards play an important role in personal finance. For many people, a credit card is their introduction into handling debt. A long, steady credit card payment history can be a cornerstone of your credit score.
However, like with any debt, there's risk involved. With multiple credit cards to keep track of, it's easier to slip up. The right number of cards to have is a decision that will vary with everyone depending on a range of factors, including your personality and financial goals.
Since how you manage debt is a personal decision, you need to determine what you can handle. Do you want to live debt-free and only have a card for emergencies? Then maybe a single card is right for you.
On the other hand, maybe you want to take advantage of certain credit card perks, and you have no problem juggling multiple accounts. You could have cards dedicated to spending in specific areas to maximize cash back rewards. As long as you make your payments and keep your debt low, your credit score can grow.
Here's a breakdown of the main benefits and drawbacks of having multiple cards:
Pros and cons having having more than one credit card
Pros | Cons |
Higher credit limit | More risk for missing a payment |
Access to more rewards | Can lead to more debt if you spend too much |
A backup if other cards are compromised or stolen | Multiple cards can have various fees than might be difficult to keep track of |
How many credit cards do most people have?
According to 2020 data from the Consumer Financial Protection Bureau (CFPB), Americans held on average 3.8 credit cards each, down from 4 in 2018. The agency attributes this decrease to a desire to limit debt and exposure due to the uncertainty brought on by the COVID-19 pandemic.
The credit reporting company, Experian, breaks it down further. By generation, Baby Boomers have the most credit cards, with an average of 4.61 per person. Millennials average about 3.18 and those in Generation X have 4.23 credit cards each. GenZ (ages 18 - 26) has the lowest average, at 1.91 credit cards per person.
Yes, you can have too many credit cards. However, the number of cards you have isn't going to directly affect your credit score. It's all in how you manage your debt.
"The number of credit cards a consumer should consider really depends; there's no magic number or simple formula," says Shazia Virji, general manager of credit services at the online personal finance platform, Credit Sesame. "It depends on the consumer's financial situation, long-term goals, and how much debt they can responsibly take on."
In other words, past due payments and accumulating debt will be what lowers your credit score, not a specific number of credit cards.
Credit cards, along with the debt you have on them, can have both positive and negative impacts on your credit score. Remember, most credit card providers report your activity to the three major major credit-reporting companies: Experian, TransUnion, and Equifax.
That means every transaction or payment is being tracked and can make your score rise or fall depending on your actions.
Here are four ways credit cards affect your credit score that you should be aware of:
1. Credit history
The age of your credit card account matters. If you have a credit card for 15 years and every month you make the payment on time, that's establishing consistency. Your credit score will grow because you have a track record of regular payments. It's for this reason that you should keep your oldest credit card open and active. Even if it only has a $300 limit, the history you've established with it bolsters your credit score.
2. Credit mix
Credit mix is the variety of types of credit and debt you hold. For example, maybe you have a secured loan like an auto loan or a mortgage, some student loans, and two credit cards. Each of these reflects what kind of consumer you are and how responsible you are with your money.
Credit cards play an important part in your credit mix. Unlike loans, where you take out a set amount and agree to pay it off over a term, credit cards are revolving debt. The debt changes as you spend and pay it back. Having a credit card in the mix gives credit reporting agencies insight into how you handle fluctuating debt.
3. Available credit and credit utilization
Credit reporting agencies look at how much credit you have available and how much of it you're using. The way this usage is measured is through what's called your credit utilization ratio, or your credit line ratio. The higher your credit utilization, the more it will negatively affect your credit score. For example, let's say you owe $2,500 on a credit card with a limit of $10,000. Your credit utilization then is 25% because you're using 25% of the credit you have access to.
"What's more important than how many cards you have is what your credit utilization is," Virji says. "It may be beneficial to spread your spending across various cards in order to maintain a healthy credit utilization rate." However, don't just run out and apply for more cards to spread your spend across without knowing that new credit applications will have an impact on your credit score too.
4. New credit application
Applying for a credit card can have a negative impact on your score temporarily. That's because credit reporting agencies view credit applications as a potential sign of money trouble. Even just one hard credit inquiry can drop your credit score in the short term. However, if you keep your debt low and make regular payments, your score will move higher.
How many credit cards should I have?
So how many credit cards should you have? There's no one-size-fits-all answer.
"There is no absolute number for too many or the right number of credit cards," says Freddie Huynh, vice president of data optimization at the digital personal finance company, Freedom Financial Network.
"The key is to use the cards responsibly, which means to charge no more than you can pay off in full, every month, and on time — period," Huynh says. "That goes whether you have one or many credit cards. Too many cards may be one card if you aren't able to do this."
Nevertheless, most adults need one credit card that they can manage responsibly, according to Huynh. Multiple cards typically are not necessary, he says,
Virji notes that having at least one card "makes sense to provide flexibility in case of an emergency or for large expenses that you'd like to spread out over time." However, he points out that you won't be able to access the benefits that come with multiple cards, he says.
How many credit cards you should have depends on what you need from them. Rewards and store cards can come with several perks, like sign-on bonuses, cash-back offers, free meals at restaurants, and more.
"If, for instance, a card comes from a retailer that offers free shipping with the card (which is not available with purchases made with another card), and you order enough times throughout a year that you know you'll use and benefit from that, it could be worthwhile," Huynh says. "Such a card also could be advantageous to someone interested in associated promotions, coupons, and sales."
If juggling several store and rewards cards seems like too much for you, you may want to stick to only a couple of cards. However, if you know you're capable, you can take advantage of a lot of great perks with a larger number. For most people, it's about striking a balance and remembering the value of growing your credit score.
"The better you are at managing your credit limits, the higher your credit score will be, allowing you to accomplish your more meaningful financial goals," Virji says.
How to choose the right credit cards for you
There's a credit card available no matter what your goals are or where you are in building your credit. It helps to know a few basic types of credit cards to help you apply for the right one. Here's a few types to get you started:
Secured credit card
Secured credit cards are great for those with little credit history or a low credit score. These cards are tools to build a positive credit history. The way they work is that you make a deposit when you sign up, "securing" the card with collateral. This deposit usually acts as your credit limit.
Credit card with no annual fee
Credit cards with no annual fee are more your everyday variety of credit card. Though be aware: this is a large category with varying interest rates, credit limits, and other features. These cards may come with some cash back rewards or perks, but they're not going to have as much of those as high rewards cards.
High rewards credit card
For the credit card enthusiast, or at least for those with a higher credit score, high rewards cards come with plenty of perks. These can include points toward hotel stays, free meals at restaurants, high cash back percentages, and many more. These cards often come with annual fees, but some don't. If you're looking to apply for a high rewards card, it pays to research to find one where you can take full advantage of the rewards.
4 steps to managing multiple credit cards
If you've decided you want to take on another credit line, there are four simple steps that will help you manage, whether you've got three cards or 13.
1. Check in weekly
A weekly check-in with each credit card keeps you aware of your spending and upcoming payment dates. Checking in regularly not only helps you avoid any surprises, but it also keeps you aware in case unfamiliar charges pop up due to your credit card information being stolen.
2. Don't carry the balance
If possible, paying off your multiple credit cards every month is the best way to go. This means you're not overspending, and because you're not carrying the balance, you're not being charged interest, which can really pile up.
3. Use a budgeting and credit monitoring app
With multiple credit cards, it's good to have a central location for information. Each of your credit card providers probably has its own app, but dealing with all of them can be tedious. Instead, link all of your cards to a budgeting and credit monitoring app to keep all the information in one place.
4. Have different purposes for different cards
To take full advantage of rewards and to keep old cards active, have specific purposes for them. Do you have a card that gives you 4% cash back on gas? Use it just for filling up. What about an old secured card with a $500 limit? Use it just on take out to keep it active. Having an assigned purpose for a card can help establish a relationship with that card and your spending, which can help you budget, make your payment, and make the most of the perks of the credit card.