There is no one-size-fits-all answer to the question of how many credit cards you should have. As with a lot of things within the realm of personal finance, the right answer is: however many are right for you.
However, there are definitely several things to keep in mind when you’re trying to figure out the optimal number of cards for your situation.
While each new card increases your credit limit (which can boost your credit utilization), too many cards can entice you to overspend.
The optimal number of credit cards (for most people)
If you’re trying to determine how many credit cards you should have, it might help to look at what everyone else is doing.
In the United States, the average person has 2.35 credit cards. While some people view credit cards as a negative thing or something to avoid, credit cards can actually help your credit score — but only if you use them wisely.
In fact, Americans with the highest credit scores also have the highest number of cards. Of course, this doesn’t mean you should run out and open a bunch of new cards. However, it shows that responsible credit use can be a positive thing.
In short, the right number of credit cards depends on your personal situation and your goals.
When to keep your number of cards to a minimum
Your ideal number of cards will depend on your personal situation. For example, if you’re brand new to credit, it’s best to start small. Stick with one card in the beginning, so you get the hang of paying off your bill every month.
The same might be true if you’re trying to work your way up from a low credit score. In this case, you’ll probably want to focus on making on-time payments toward a single card. This helps you establish a positive payment history, which will raise your score.
When to take on more cards
In some cases, it might make sense to open more credit cards. If, for example, you have good credit, increasing your credit limit could bump you up to the “excellent” range by boosting your credit utilization.
Likewise, a new card could come with benefits that fit your lifestyle. For example, if you travel frequently, a card that offers airline miles could help you save big on plane tickets.
Before you open a new card, take a look at what various lenders are offering. The better your credit score, the more options you’ll have. There are plenty of good deals out there if you’re willing to do some research.
Having a different card for different benefits
Not all credit cards are the same, which is another reason why it sometimes makes sense to have a few different cards in your wallet.
While one card might offer fantastic cash back rewards, another could feature travel points that help you finance your next vacation.
You might even be able to find a credit card that gives you VIP status for certain kinds of purchases, such as concert tickets and “invitation only” events. Some credit cards also offer lucrative sign-up bonuses you can put toward hotel stays, airline tickets, and other purchases.
3 problems with having too many cards
While there isn’t any magic formula for determining how many credit cards you should have, there is such a thing as too many cards. Here are three potential problems to watch out for.
1. Too much new credit
The amount of “new credit” you carry accounts for 10 percent of your credit score. While opening one new card won’t do much to lower your score, taking on several new accounts at once could noticeably drop your score.
Opening a few cards within a short time can also negatively impact your credit history—how long you’ve used credit—which makes up 15 percent of your credit score. This is because your credit history is calculated on average. So while you might have had one card for 15 years, opening up two brand new ones will shorten your average credit history.
Opening one new card won’t really affect your credit score, but signing up for several at once will shorten the length of your overall credit history — and that can definitely cause your score to take a hit.
2. Keeping track of multiple credit cards
The more credit cards you have, the harder it can be to stay on top of payment due dates and other important details. Being late on a payment can have a long-term negative impact on your credit score.
You can sometimes get around this by signing up for automatic payments, but this can be tough on your budget if you have a lot of cards.
3. The temptation to spend
When you have multiple credit cards, it’s easy to reach for credit—even when doing so can land you in trouble.
This is why it’s better to gradually ease into additional credit cards. Start with one and see how you handle it. Make a few purchases and then pay them off. The idea is to use your card to build your credit — not finance a major purchase that will have you paying interest for months and maybe years.
Before you start using your card, make sure you can afford to pay it off each month. Take a look at online interest calculators to see how interest rates can cause your debt to snowball. This credit card repayment calculator from Credit Karma lets you play with the numbers to get an idea of how interest will impact your payments.
For example, if you pay $50 per month on a $3,000 credit card balance at 18% interest, it will take you over 12 years, and you’ll pay $4,733 in interest—more than the original balance.
How the number of credit cards you have can impact your credit
Opening a new credit card increases your total available credit. This can improve your credit utilization rate, which can have a positive effect on your credit score.
For example, if you have a $400 balance on a credit card with a $1,000 limit, your credit utilization is 40 percent. This is a bit higher than the ideal 30 percent rate, and you might see a dip in your credit score as a result.
If you keep everything the same but open a new credit card with a $2,000 limit, your total available credit will increase to $2,600, and your new credit utilization rate will be around 15 percent. This will likely raise your credit score, which makes you much more appealing to potential lenders.
It also helps to distribute your debt among several cards rather than having one card bear the brunt of all your debt. This keeps your credit utilization low on each individual card, which can help increase your credit score.
How opening a new card affects your credit
We’ve already talked about how “new credit” accounts for 10 percent of your credit score. What you may not realize is that applying for credit too often can also hurt your score.
When you apply for a new credit card, it counts as a hard inquiry on your credit report. While one or two hard inquiries from time to time won’t cause any damage, racking up too many in a short amount of time can pull down your score.
This is why it’s best to spread out new credit applications over several months rather than trying to open multiple new accounts at once.
How closing an old card affects your credit
If you no longer use a card, you might be tempted to cancel the account. In some cases, people mistakenly believe that clearing out old accounts can help their credit score.
However, this is not the case. In fact, closing old accounts can hurt your credit score. When you close an old account, you remove that card from your credit history. This can make it seem like you haven’t been using credit all that long, which makes you more of a risk in the eyes of lenders.
Why having a credit card is the best way to build credit
There are numerous ways to build credit, but using a credit card is probably the easiest and fastest. Unlike a mortgage, student loan, or auto loan, you don’t need to charge a huge sum of money on a credit card to establish a positive payment history.
With a credit card, it doesn’t matter if you charge $20 or $2,000. As long as you pay off your balance in full—and on time—each month, you can establish a positive payment history and begin building credit.
6 tips to manage your credit score going forward
If you have poor credit or no credit, the good news is it’s possible to turn things around. Even better, it probably won’t take as long as you think. Here are six tips for managing your credit.
1. Review your credit report
Your credit report is a comprehensive look at how well you use credit. This is what creditors look at when making a decision to lend you money. You should review your report often — at least once a year at minimum and preferably more often than that.
By law, you’re entitled to one free credit report from all three credit bureaus once every 12 months. You can order your free reports by visiting annualcreditreport.com.
Once you have your reports, look over them carefully. If you spot any errors or inaccuracies, dispute them.
2. Set up automatic payments
Your payment history makes up 35 percent of your credit score, and even one or two late payments can have a serious impact. The more credit cards you have, the harder it is to keep track of payment due dates.
Automatic payments take the hassle out of managing your credit cards. As a bonus, many credit card lenders offer a small discount or a reduced interest rate if you opt to auto-pay.
3. Use your rent payment to build credit
It takes credit to build credit, which can be a major obstacle if you’re just starting out. If you keep getting turned down for credit cards, try using your rent to establish a positive payment history.
Most landlords don’t report tenant payments to the credit bureaus, so you might have to sign up for a third-party service that does it for you. There’s usually a small fee, but it’s worth it if you really need to build credit.
4. Pay off your balance every month
Ideally, you should pay off your credit card every month. Carrying a balance can hurt your credit utilization. It also means paying interest, which can cause your debt to balloon out of control.
By paying off your balance each month, you avoid paying interest and gain a positive payment history that helps you improve your credit score.
5. Keep new accounts to a minimum
Taking on too much new credit all at once can raise red flags in lenders’ minds. If you open several new accounts within a short timeframe, lenders might worry you’re in some kind of financial trouble.
You can get around this problem by spacing out new credit applications every few months or so. This way, you avoid racking up multiple hard inquiries that can hurt your credit score.
6. Keep old and dormant accounts open
Old accounts show lenders that you’ve got years of responsible credit use under your belt. When you cancel these accounts, you deprive yourself of that valuable credit history.
Unless a credit card has a high annual fee or some other drawback, it’s better to keep it open. You can cut up the old card or store it in a drawer, but keep the account itself in good standing.
Bottom line
When it comes to credit cards, it’s not necessarily how many you have, but how well you use them. Used properly, credit cards can be an excellent tool for building and maintaining credit.
