The Internet is full of articles recommending credit cards, but how many of those cards should be in your wallet? The average American has around four cards, according to credit-reporting agency Experian—but is that the ideal number? Is it good to have multiple credit cards? How many credit cards is too many? Bottom Line Personal asked Bankrate.com credit card expert Ted Rossman for insight.
The Right Number—Two or Three
Having just one card can be risky. If something goes wrong with that card, you could end up without any convenient payment method. And things occasionally do go wrong with credit cards—accounts are suspended when scammers get hold of card details…and they’re sometimes temporarily frozen when issuers’ fraud-detection algorithms flag potentially suspicious purchases. Having a second card minimizes the hassles when such things happen.
Moreover, married couples who share just one credit card account might be setting up one spouse for unfortunate financial complications. Shared credit card accounts are almost never in both spouses’ names—one spouse typically is officially the account holder…the other is an “authorized user.” That authorized user’s credit score doesn’t receive the same boost from the account as it would from an account in his/her own name…and the authorized user likely will lose access to the account if the account holder dies or the couple divorces.
Having many credit cards creates complexity. More cards mean more payment deadlines to keep track of and more uncertainty about which card is best for each purchase.
These factors indicate that the ideal number of credit cards is two or three for most people…and married couples should have at least one card in each spouse’s name. Two potential exceptions…
People who chronically accumulate credit card debt might reasonably decide that the ideal number of cards for them is…zero.
People who enjoy maximizing credit card rewards programs might opt to have more than three cards—potentially many more—as long as they have the organizational skills to cope with the resulting complexity.
The Ideal Credit Card Collection
Whatever the number of cards in your wallet, the cards you choose should offer different perks and rewards programs. Depending on your spending habits and priorities, your ideal set of cards might include ones that provide…
Solid rewards rate on all purchases
A 2%-cash-back card makes sense here. Examples: Citi Double Cash or Wells Fargo Active Cash.*
Elite rewards rate for your top spending categories or businesses
Which card is best depends on where you spend the most. Examples: American Express Blue Cash Preferred offers 6% cash back at supermarkets ($95 annual fee)…Prime Visa offers 5% back on Amazon.com purchases (no annual fee), to name two options among many.
Rental car and travel insurance
Cards offering these perks can be big money savers for people who travel a lot. Examples: Chase Sapphire Preferred ($95 annual fee) has excellent rental-car and travel protections…Chase Freedom Flex (no annual fee) is strong in these areas versus other other no-annual-fee cards.
No foreign transaction fee
This feature is valuable for consumers who regularly travel abroad. Examples: Chase Sapphire Preferred ($95 annual fee), mentioned above, doesn’t charge these fees…nor do Discover cards (no annual fee), though Discover is less widely accepted overseas than Visa or Mastercard.
Relatively low interest rate
This is valuable to cardholders who carry credit card balances. No credit card offers low interest rates today, but some have rates that are less horrible than others. Example: UNIFY Federal Credit Union (no annual fee) has several cards with fixed and variable rates below 15%.
Credit Card Quantity and Credit Scores
Having lots of credit cards will not necessarily lower your credit score if you use them responsibly and spread out the applications. In fact, it’s likely to increase your score over time as long as you use your cards responsibly.
“Credit-utilization ratio”—the percentage of your available credit that you’re currently using—is an important credit score component. Lower is better—people who have elite credit scores typically have credit-utilization ratios below 10%. The more credit cards you have, the higher your available credit climbs and the lower your credit-utilization ratio falls—assuming that your spending doesn’t change—and this boosts your credit score.
You may be thinking, I pay off my balance in full each month, so my credit utilization is 0%—but it doesn’t work that way. Your credit-utilization ratio is calculated based on the percentage of your available credit that you’re using at that moment (usually the statement date), regardless of whether you pay off your balance in full before it accrues interest.
Beware of cancelling credit cards: Cancelling cards that you no longer use will lower your overall credit limit and likely your credit score.
“Average length of credit history” plays a modest role in determining your credit score, too—this refers to how long you’ve had your credit card accounts…longer is better. That’s another reason not to cancel credit cards that you’ve had a long time or sign up for lots of new cards.
On the other hand, having lots of credit cards could lead to lower credit scores if you struggle to keep track of your cards and are late with payments. And each time you apply for a new card, the resulting credit inquiry has a modestly negative effect on your credit, though only in the short term.
What To Do
If you have all the cards you need but want a higher credit limit to lower your credit-utilization ratio, consider asking your existing card issuers to increase your cards’ credit limits rather than apply for new cards.
Instead of cancelling a card that you no longer use, contact its issuer and ask if you can switch to a different card offered by that same issuer that’s a better fit for you. If the issuer doesn’t offer any cards you want, consider simply leaving your unneeded card at home rather than cancelling it. Use it every now and then to prevent the card issuer from cancelling your account.
Avoid applying for multiple new cards within any six-month window to prevent the small negative effect of each credit inquiry from adding up to a substantial drag on your credit score.
