It is certainly true that using more than one credit card can make paying off debt unsustainable. However, there is no simple answer to the question of how many credit cards you should have, and there may even be advantages to having more than one credit card. Most experts agree that having multiple credit cards can help or hinder your credit score, depending on how well you manage your credit card.
The profit that can be made with multiple credit cards ultimately depends on the cardholder and the degree of financial responsibility of the cardholder. According to Experian, millennials have an average of 2.5 cards each, while baby boomers have an average of 3.5 cards.
Some people prefer to live without credit cards and avoid the temptation to spend money without them. Some people do well with one card for cash back, while others keep two cards for different purposes. One is for everyday expenses and the other is for special dinners out of the house or travel.
How many credit accounts are too many or too few?
The credit score formula doesn’t penalize you for having too many credit accounts, but you can have too few. According to the Credit Bureau, five or more accounts, which can be a mix of cards and credit, are appropriate to increase over time.
If you have very few accounts, the assessment model can make it difficult to show results. Generally, no more than 4 accounts are considered “thin files.” Thin files are difficult to score higher than thick files, and lenders may view thin files as more dangerous.
And with thin files, credit actions can have a greater impact on your account than if you had more accounts. A good example: if you have fewer cards, you may not need to spend much to fully utilize your credit limit. The amount of credit you use is called credit utilization, and those with the best scores tend to use less than 10% of the limit. Using more cards can help lower your credit utilization.
How do multiple credit cards affect your credit score?
Having more than one credit card reduces your credit to debt ratio (also known as credit utilization), which can indirectly affect your credit score.
Your credit utilization is the amount of credit you use compared to the total amount of credit available to you. Borrowers usually want credit utilization to be less than 30 percent. Interest rates above 30 percent can have a negative impact on your credit rating.
Opening a new credit card increases your total available credit. This means you can spend more before your credit utilization reaches 30 percent. If your rates are already above 30%, opening a new card can lower your credit utilization and improve your credit rating.
However, the most important thing you can do with multiple credit cards is to save what you owe. You should keep track of how much you spend on each credit card and the payment deadline to avoid card debt, paying high interest rates, or missing payments. It’s also a good idea to pay off your credit card balance in full each month, rather than making the minimum payment.
Would it be better to have more than one credit card?
The impact on your credit rating will be one of the main problems with having more than one credit card. This is a common consideration, but having more than one credit card can actually improve your credit rating by making it easier to maintain low credit utilization.
For example, if you have one credit card with a $2,000 credit limit and the card charges an average of $1,800 per month, your credit utilization rate (available credit) is 90%. When it has to do with your credit score, high credit utilization will hurt your credit score. This may not seem fair. If you only have one card and pay it in full and on time every month, why should you be disadvantaged by using more of your credit limit? But that’s how the credit rating system works.
How many credit cards do I need?
The number of cards you need to have depends entirely on your unique financial situation and spending history. The most important thing is that you can pay back the entire balance on all your cards each month. Keeping multiple cards is a big responsibility, and if you doubt you have the ability to pay off your balance each month, it may be best not to collect multiple cards at this time. In the long run, it’s always better to eradicate the temptation to keep consuming.
Get one cashback card.
If you’re applying for your first credit card, we recommend that you find a card with no annual fee that pays you cashback every time you make a purchase. For example, the Discover it® cashback card provides 5% cashback on daily purchases at a different location each quarter, and you can spend up to $1,500 per quarter on activation. You can also automatically receive an unlimited 1% cashback on all other purchases. This provides a great opportunity to earn rewards and feel comfortable with how your credit card works. Even if your credit limit is small to begin with, it can be enough to cover regular, large expenses.
Add a few unaudited cards depending on where your spending is going.
When you add a card to your wallet, think about where you spend the most on credit cards, and find out what cards offer extra rewards in those places. Pay attention to cards that don’t charge an annual fee.
A reasonable starting point might be to find the credit card that rewards you the most for grocery shopping. The American Express Blue Cash Everyday® card (Terms and Conditions apply. See Fees and Charges) provides a 3% cashback on purchases at U.S. supermarkets, U.S. gas stations and online retailers (up to $6,000 per purchase unit per year, then 1%) and a 1% cashback on other purchases. The cashback comes in the form of prize dollars, which can easily be redeemed for statement credits. Another option is to apply for the card at your local bank, which offers a rewards card with a single exchange rate.