In many circles, owning a credit card is a rite of passage. You graduate high school, register to vote, and apply for your first credit card. Credit cards can be an important step toward learning to manage money and building enough credit to score that first car or home. It can even be an important step toward getting your own cellular service plan.
About 71 percent of us own at least one credit card, a number that has actually declined in recent years. The average American owns between 2 and 4 credit cards and owes $3,573 in credit debt. The average household owes about $15,675 on their credit cards. An average interest rate of 18% means the typical household is paying $6,658 in interest annually. As a whole, Americans are $729 billion in debt to credit card companies.
So, how many credit cards should you carry? Is there an ‘ideal number’ of cards for getting a good credit score and managing your finances? Let’s take a look.
How many cards you need depends on what you use them for. The best uses for credit cards include:
- Building a credit history and improving your credit score
- Security — instead of carrying cash, which is easy to steal
- Insurance — select credit cards guarantee purchases and protect the consumer from loss and fraud
- Grace period — if you need extra time to pay for something, a credit card helps buy time
- Universally accepted — major credit cards are accepted almost everywhere
- Budgeting — you can use credit cards to track purchases
- Company credit cards — the safest, most secure way to let employees make purchases
How the number of credit cards affects your credit score
There are several ways that having more or fewer credit cards can affect your credit score. Credit card companies will look at your:
- Credit utilization
Consider how much you’ve charged against your total credit line. For example, if you’re only using 10 percent of your available credit, that’s good. If you are using 90 percent, that’s a sign you’re getting in over your head. Actually, taking out more credit cards can decrease your utilization percentage, giving you a better credit score. But if you’re tempted to over-use credit, you could charge even more on the new accounts, which will hurt your score.
- Credit inquiries
Every time a credit card company (or other lender) makes a credit inquiry, it temporarily lowers your credit score. So, if you have a lot of inquiries, you’ll have a lower credit score.
- Recent credit card activity
When someone utilizes a lot of credit in a short time frame, this is a red flag to creditors. If you’ve had a lot of credit activity recently, it’s best to ease up until your credit score recovers.
- Account diversity
Creditors like to see a diverse range of credit in a person’s credit report. For example, they like to see a mixture of secured loans (like home mortgages and car loans) and unsecured loans (like credit cards). Having different types of credit cards can help create diversity. Consider a mix of major credit cards, gas cards, retail cards, and rewards cards. Premium or “platinum” cards are good because those are only issued to customers with the highest credit ratings.
As you can see, having more or fewer credit cards doesn’t affect your credit score as much as your ability to manage your credit.
Benefits of carrying multiple credit cards
Don’t have so many cards that you wouldn’t notice suspicious charges.
The benefits of carrying multiple credit cards depend on how you’re using them.
- Having multiple cards allows you to maximize the points and rewards you earn.
Say you have one airline card and one from your favorite hotel chain. You might be able to earn double miles by charging your plane tickets on the airline rewards card, and double points on hotel stays with the hotel rewards card.
- Multiple cards can give you more security.
Picture your next vacation. While you’re checking out at the gift store at Niagara Falls, the guy behind you peeks at your credit card and steals your card number and PIN. You get a call from your credit card company, saying you just bought $2,500 worth of furniture in San Francisco (while you’re still in New York). They have to close your account and issue you a new card. If you have a couple of other credit cards in your wallet, the fraud won’t disrupt your vacation.
- If you have several credit cards, there’s less chance you’ll be somewhere that doesn’t accept yours.
While most major credit cards are accepted almost everywhere, there are exceptions. Also, a company’s system can go down temporarily. Having two cards gives you a better chance of having one that works.
Getting the most out of credit card rewards programs
If one or more of your credit cards is a rewards card, you need to understand how to maximize those rewards. To get the most out of these types of cards:
- Always charge purchases to the card that offers you added rewards for the type of purchase in question (gas, plane tickets, etc).
- Pay off your balance each month – Rewards cards tend to have higher interest rates, so you could pay more to carry a balance on these types of cards. Typically, rewards cards have a 2-4 percent higher interest rate than other types of credit cards.
- Don’t spend just to earn rewards – If you buy things you wouldn’t normally buy just to get the points, the card becomes a problem.
- Use the card for group expenses – For example, if you buy airline tickets for 5 of your coworkers and let them pay you back, you’ll earn 5 times the rewards.
- Use rewards cards for automated payments – Your recurring payments — like gym memberships, insurance premiums, or cell phone payments — can rack up lots of rewards points.
- Understand the process for redeeming rewards – Too many people use their cards to earn points, only to lose those rewards because they are unable to redeem them.
Having multiple rewards or points cards makes it easy to decide which purchases should go on which card.
For example, if a credit card gives you double air miles for any charges to a rental car company, you’ll want to use that card for those purchases. Or, if you only earn hotel rewards points for staying at a certain chain of hotels, you can keep another credit card for charging stays at other hotels. Always charge your purchases to whichever rewards card makes the most sense.
Similarly, you can put purchases that you’ll be paying off each month on a higher interest credit card, saving balances you’ll carry over month-to-month for your credit card with the lowest interest rate. When you have multiple cards, it’s much easier to use each card the way that makes the most financial sense.
Dangers of having too many credit cards
A wallet full of credit cards is a good way to track spending or to get the most out of rewards programs. But consumers who have trouble limiting their spending can get in trouble.
As mentioned earlier, there are good reasons for having multiple credit cards. But after a certain point, too many cards can become a disadvantage. Here are the downsides of having too many credit cards:
- It’s easy to get into debt.
- If you have too many cards in your wallet, you might start buying things you ordinarily wouldn’t or things you can’t afford.
- It’s hard to manage multiple credit cards. You have to worry about keeping up with due dates, interest rates, points, and the possibility of a card getting compromised. You might also forget the limits associated with each card, which can result in exceeding your credit limit.
- You might use credit cards when a loan would be better.
- Many credit cards have introductory rates and the interest rate goes up after the introductory period. If you have too many cards, you could lose track of when the introductory period ends and end up paying high interest rates.
So how many credit cards are ideal?
There is no ‘perfect’ number; for most people, one to three cards is just right. Others, who use credit cards regularly for business purposes, might benefit from having four to six. If you’ve got 10 credit cards and always pay off the balances on time and aren’t charging more than you can afford, there’s nothing wrong with that! If you have only one credit card, and that’s all you feel you can manage, there’s nothing wrong with that, either. Whatever you can manage is the perfect number of credit cards for you.