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One of the burning questions I always had as a credit card user was how many credit cards should I have. Credit cards are helpful in building credit and helping during financial emergencies. You need an appropriate number of credit cards to get benefits. If you have less, credit bureaus will have to work hard to gauge your credit score and history. Having too many, you will stretch yourself too thin and have problems repaying loans.
However, there is no magic number to quantify how many credit cards you should have. Financial experts believe multiple credit cards can help you build credit if you manage them well. It will crash your credit score like a house of cards if it becomes unmanageable. Recent surveys and statistics show that an average working American with an independent income has 4 credit cards to themselves. The number has reduced over the past couple of years as the American economy is still recuperating from the damage of the coronavirus pandemic. This article talks about how many credit cards you should possess.
How Many Credit Cards Should You Have?
The number of credit cards you should use depends upon your income, security of employment, and stability of that income. Having more than one credit card boosts your purchasing power. The more credit cards you have, the more points and discounts you can gather to save on your expenditure. Having multiple credit cards help in increasing your credit score. It keeps the credit utilization ratio stunted. CUR is the rate of the total credit you used, i.e., the amount of credit you utilized divided by the total amount of credit you are allotted.
You have a higher credit utilization ratio when you utilize more of your total credit. And when the reverse is true, the ratio is low. The credit score is inversely proportional to the credit utilization ratio. As the ratio goes up, the credit score goes down. This is where having multiple credit cards comes in handy. For example, if your credit line of one card is $3,000 and you use up $2000, that’s a CUR of 60%. This can impact your credit score negatively. However, if you have two cards with the same credit line as before and divide up your usage in half, CUR becomes 33%. This will improve your credit score as CUR is lower than in the previous circumstances. But how many credit cards is too many credit cards?
One should have no specific or appropriate number of credit cards. It will largely depend upon your income and the stability of your income. It also depends on how better you can handle multiple credit cards without spreading yourself too thin. After some time, you’re far more likely to miss payments and see a drop in your credit score. In such cases, you need help organizing where to put money and how much you must return.
Should You Have Multiple Credit Cards?
Let’s get to the fundamental question. Is it good to have multiple credit cards? To put it shortly, yes. Having more than one credit card boosts your purchasing power. The more credit cards you have, the more points and discounts you can gather to save on your expenditure. Having multiple credit cards helps in increasing your credit score. It keeps the credit utilization ratio stunted. CUR is the rate of the total credit you used, i.e., the amount of credit you utilized divided by the total amount of credit you are allotted.
You have a higher credit utilization ratio when you utilize more of your total credit. And when the reverse is true, the ratio is low. This affects credit scores. The credit score is inversely proportional to the credit utilization ratio. As the ratio goes up, the credit score goes down. This is where having multiple credit cards comes in handy. For example, if your credit line of one card is $3,000 and you use up $2000, that’s a CUR of 60%. This can impact your credit score negatively. However, if you have two cards with the same credit line as before and divide your usage in half, CUR becomes 33%. This will improve your credit score as CUR is lower than in the previous circumstances.
One should have no specific or appropriate number of credit cards. It will largely depend upon your income and the stability of your income. It also depends on how better you can handle multiple credit cards without spreading yourself too thin. After some time, you’re far more likely to miss payments and see a drop in your credit score. In such cases, you need help organizing where to put money and how much you must return.
Potential Issues with Having Multiple Credit Cards
While there isn’t any answer to how many credit cards you should have, we have established that having multiple credit cards can be beneficial if you manage them. However, is everything rosy and glossy as it appears to be? No, there are a few things you have to keep in mind. So, is it bad to have a lot of credit cards? No, that’s not true, either. However, there are a few challenges that come with it. Let’s discuss this.
Spacing Out on Credit Card Applications
If you were asking if is it bad to have multiple credit cards, this could be a reason that makes your experience bitter. While applying for credit cards, many credit card companies do a hard check on your credit score and banking history. A hard check on your credit score decreases it by a margin, which can sometimes be adverse. If you do this multiple times, then imagine the effect on your score over time.
Managing Multiple Billing Cycles
If you have multiple credit cards to build credit, you will know it takes time to keep track of all the bills, payments, due dates, and interest rates of each credit card after some time. You might forget and start missing out on payment. It can adversely affect your credit score and impact your chances of getting credit in the future. Then, how many credit cards is too many cards?
Effect on Big Purchases
If you’re making big purchases such as a car or a house through credit, hold your multiple credit card application. If your credit card company does a hard credit check, it will impact your ability to make that purchase.
Impact On Your Credit Score
While I have no answer to how many credit cards can you have, it could impact credit scores and not always for the better. Having multiple credit cards can be a significant turn-off for many lenders. Too many credit cards can scare off lenders, making you look like a potential liability and defaulter. However, everything is not doom and gloom. Let’s discuss this in detail.
Credit Utilization Score
Having multiple credit cards helps in increasing your credit score. It keeps the credit utilization ratio stunted. CUR is the rate of the total credit you used, i.e., the amount of credit you utilized divided by the total amount of credit you are allotted. You have a higher credit utilization ratio when you utilize more of your total credit. And when the reverse is true, the ratio is low. This affects credit scores. The credit score is inversely proportional to the credit utilization ratio. As the ratio goes up, the credit score goes down. This is where having multiple credit cards comes in handy.
Payment History
Payment history is a massive factor in deciding your credit score. About one-third to 40% of your credit score owes its accountability to on-time payments and the regularity of those payments. In such cases, the number of credit cards does not affect your credit score. If you have paid your bills on time, it will substantially increase your credit score. If not, then your credit score will decrease.
Credit Age
The amount of time you have a credit line also matters. Holding on to your old credit card for ages can negatively impact your credit score. It can turn away lenders and financial institutions. In such cases, having multiple credit cards helps. So, how many credit cards should I have? Well, there’s no correct answer.
Tips on Managing Multiple Credit Card
Credit cards have diversified into different beneficial discounts and rewards, so it is pointless to use just one card. But owning more than one credit card has its problems. You spread yourself too thin and need help managing your debt and credit as you go along. So here are a few tricks to manage them properly.
- Keep a note and tab on the cards and their corresponding features. You must also note the annual fees, APR, balance, and payment due date.
- Giving each a role is an excellent way to manage your credit. Keep a card to buy essential items like groceries or electricity bills. Keep another card to buy other consumer items if you receive cashback. Keep one for travel.
- Save space by carrying only some of your cards at a time. Some credit cards, like airline cards, can only be used to buy flight tickets. So you don’t need to carry it all the time. Some cards are used just at gas stations. So apply that logic to that card as well.
- Automate your payment. Many credit cards offer discounts and benefits for people who automate their payment dates. In that way, you can’t miss your payment schedule.
- Also, synchronize your payment schedule with other cards as well. It helps to keep a rhythm, and thus you won’t miss your statement.
- Opt for those credit cards which has an alert system. The system can alert your payment schedule to you. This way, you can’t miss it under any circumstances.
- If you can’t get one, set credit card reminders yourself.
- You should have multiple savings accounts. Now if you’re asking how many saving accounts should I have, the answer is there’s no specific number.
Why Should You Wait Between Credit Card Applications?
Although there’s no answer to how many credit cards is too many, it is advisable to wait between credit card applications. There are no legal or institutional barriers to applying for multiple credit cards, but it is not a good idea. Banks, credit card companies, and other financial institutions do hard credit checks on your credit history. This can lower your credit score temporarily.
If you have applied for credit cards for bad credit, and the company checks your credit as a part of your application process, it is called a hard credit check. A hard credit check occurs when you apply for a mortgage for a house or an education loan. Sometimes credit card companies make a hard inquiry as well. Hard inquiries are typically the inquiries that the financial institution makes to check the frequency of your on-time payments, your debt consolidation, overdrafts, and other marks and credentials regarding your credit history. This can lower your credit score, but the score bounces very quickly. The lapse in credit score is often negligible. However, applying to multiple credit cards can affect your credit score significantly.
Applying to multiple credit cards also decreases the average age of your credit accounts. It can also increase massive overspending. In such cases, lenders are reluctant to extend credit.
What is the Average Number of Credit Cards per US Consumer?
Statistics vary, considering different factors. Recent surveys and statistics show that an average working American with an independent income has 4 credit cards to themselves. The number has reduced over the past couple of years as the American economy is still recuperating from the damage of the coronavirus pandemic.
According to credit karma, the average American held 4.73 credit cards in their survey until June 2017. This figure also includes people without a single credit card. Transunion conducted their survey and found the number to be around 2.67 cards per working person. The data was compiled in June 217 as well. According to their statewide analysis, Minnesota had the lowest density of credit cards, with 2.53, and New York, New Jersey, had the highest density at 3.06. A survey at Experian has stated that the average credit number in 2020 had decreased, mainly because of the pandemic. South Dakota had the sharpest drop at 5%, and Mississippi had the lowest drop at 1%.
FAQs
Q1. Do you build credit faster with 2 cards?
CUR is the rate of the total credit you used, i.e., the amount of credit you utilized divided by the total amount of credit you are allotted. Having multiple credit cards helps in increasing your credit score. It keeps the credit utilization ratio stunted.
Q2. How many credit cards is average?
Recent surveys and statistics show that an average working American with an independent income has 4 credit cards to themselves. The number has reduced over the past couple of years as the American economy is still recuperating from the damage of the coronavirus pandemic.
Q3. What is the golden rule of credit cards?
The golden rule is to repay all your credit card debt in one month. Credit cards have high-interest rates, so you must pay more than you borrowed if you miss your payment.
Conclusion
Is it good to have multiple credit cards? To put it shortly, yes. Having more than one credit card boosts your purchasing power. The more credit cards you have, the more points and discounts you can gather to save on your expenditure. One should have no specific or appropriate number of credit cards. It will largely depend upon your income and the stability of your income. It also depends on how better you can handle multiple credit cards without spreading yourself too thin. In such cases, you need help organizing where to put money and how much you must return. After some time, you’re far more likely to miss payments and see a drop in your credit score. However, if you can manage it properly, it can boost your credit and your spending power.
