Deciding how many credit lines you need open at any given time
It’s tempting, isn’t it? Every store, every airline, hotel, and bank seems to have a credit card promising irresistible perks. But with so many options, it’s easy to wonder: how many is too many? Are you maximizing rewards, or just maxing out your credit?
Deciding the right number of credit cards is about balancing your personal needs with responsible debt management. While your comfort and ability to handle debt are important, the number of credit accounts you have also impacts your credit score. This is because credit scores consider factors like the variety of credit you use (credit cards and loans), the length of your credit history, and your credit utilization.
We’ll go into more detail to help you understand how the number of credit cards you have relates to your credit score, your overall financial planning, and how to navigate the many credit card offers you’ll encounter. We’ll also provide practical tips for managing multiple accounts, recognizing signs of overspending, and ensuring your credit cards are a useful financial tool, not a source of debt.
Note: The strategies below really only apply if you are financially stable and able to manage debt effectively on your own. If you are having trouble with debt, another credit card probably won’t get you where you need to be. Instead, call Consolidated Credit today at (844) 276-1544 for a free debt and budget evaluation from a certified credit counselor.
How Your Number of Accounts Affects Your Credit Score
Did you know that the number of accounts you have has an impact on your credit score?
While it’s not the top factor that influences your credit score (the biggest factor is whether or not you pay bills on time) it still plays a role.
Credit utilization
Multiple credit cards can actually help your credit score by lowering your credit utilization ratio. This is simply how much of your available credit you’re using. Lenders prefer you keep it below 30%, as higher rates can hurt your score.
When you get a new credit card, your total available credit increases. This means you can spend more before hitting that 30% limit. If you’re already using a lot of your credit, a new card might improve your score.
Remember, it’s important to manage multiple cards carefully. Track your spending and payment due dates to avoid debt, high interest, and late fees. The best practice is to pay your balance in full each month, not just the minimum.
Credit mix
Lenders look at how many accounts you have to see how well you manage credit. Logic may follow then that the more credit cards the better. But this isn’t necessarily true. Accounts doesn’t just mean credit card accounts – it includes things like loans, mortgages or car loans. This is referred to as “credit mix”. So, you don’t need tons of credit cards (even different types of credit cards) to have a good score, you need a good mix of credit.
According to Credit Karma who works with two of the three major credit bureaus (TransUnion and Equifax), anything less than 10 accounts is considered “poor” and anything above 20 accounts is considered “excellent,” while “good” is everything in between. It’s critical to note that the total number of accounts includes open and closed accounts. So loans you’ve already paid off or old credit cards you may have canceled will still count on the total.
Credit length
The length of your credit history plays a role in your credit score. Older accounts, especially those with consistent on-time payments, generally boost your score. However, opening many new credit cards in a short period lowers the average age of your accounts, which can slightly decrease your score. Lenders value a long, stable history of responsible credit management so maintaining older accounts in good standing is important and quickly opening many new credit cards can diminish the positive impact of your established credit history.
The right number of credit cards
So, what’s the magic number? The truth is, there’s no one-size-fits-all answer. The ideal number of credit cards varies significantly depending on your individual financial situation and your ability to manage debt responsibly.
Here are some factors to consider:
Your spending habits
If you tend to overspend, even with one card, multiple cards will likely exacerbate the problem. Conversely, if you’re disciplined with your spending, you can leverage multiple cards for rewards and credit utilization benefits.
Your organizational skills
Managing multiple accounts requires meticulous tracking of due dates, balances, and interest rates. If you struggle with organization, keeping it simple with fewer cards might be best.
Your financial goals
If you’re aiming to maximize rewards or build a strong credit history, multiple cards, used responsibly, can be beneficial. However, if your primary goal is to minimize debt, fewer cards are advisable.
Your credit utilization
Utilizing multiple cards wisely can help keep your overall credit utilization low, which positively impacts your credit score. However, it’s crucial to avoid the temptation to spend more just because you have more available credit.
Your credit mix
A mix of credit cards and installment loans is beneficial for your credit score, but you don’t need an excessive number of cards to achieve this.
Practical guidelines
Start small
If you’re new to credit cards, or looking to improve your credit habits, start with one or two. This lets you focus on building good habits without feeling overwhelmed. Choose cards with simple terms and, if possible, no annual fees. As you consistently pay on time and keep your credit usage low, you can gradually add more cards. This helps build a solid credit history for future financial needs.
Focus on functionality
Choose credit cards that match your spending habits and offer useful rewards. Consider factors like annual fees, interest rates, and other benefits. A card with no annual fee and a lower interest rate might be more practical than one with high rewards but expensive fees. Ensure the card’s terms align with your financial goals. Don’t just get a card because it’s offered; do your research.
Prioritize responsible management
Regardless of how many cards you have, always prioritize paying your balances in full and on time. Setting up automatic payments can help avoid late fees and damage to your credit. Create a budget and track your spending to ensure you’re not overspending. Regularly review your statements for errors and keep your credit utilization below 30%.
Regularly review your credit
Regularly reviewing your credit reports and scores is crucial. Use your free annual reports from the major credit bureaus to check for errors. Consider credit monitoring services or apps to track your score and receive alerts. Regularly analyze your credit to understand how your card usage affects your financial health and to catch any fraudulent activity early.
Ultimately, the “right” number of credit cards is the number you can manage responsibly without jeopardizing your financial stability. Remember, responsible credit management is far more important than the sheer quantity of cards you possess.
The downside of multiple cards
While multiple credit cards can offer some advantages, they also come with risks. The main concern is that it’s easier to overspend and get into debt you can’t pay back. Managing several cards with different interest rates and due dates can also become difficult.
Additionally, late payments, charge-offs, and high credit utilization can negatively impact your credit score if you’re not careful.
So, before opening a new credit card, make sure you’re prepared for the added financial responsibility. Pay close attention to your spending habits and find ways to organize your finances effectively.
FAQs
How often should you apply for a credit card?
How often you apply for credit cards is important for your credit score. Every time you apply, it creates a “hard inquiry” on your credit report. While a single inquiry isn’t a major issue, multiple inquiries in a short period can lower your score.
It’s generally recommended to wait at least six months to a year between applications. This gives your credit time to recover. Many issuers offer pre-qualification tools, which let you see if you’re likely to be approved without a hard inquiry.
Consider why you’re applying for a new card. Is it for specific rewards or to build credit? Don’t apply impulsively. If your credit is poor, focus on improving it before applying for more cards. Also, avoid rapidly opening and closing accounts just for rewards, as this can negatively impact your credit.
How much will it hurt if I have fewer cards?
While the number of credit cards you have does factor into your credit score, it’s not the defining element. You can still have a strong credit score with fewer cards, or even none, if your overall financial health is sound. If you prioritize responsible credit management in other areas, such as consistent on-time payments and low debt, you can achieve an excellent score. However, having a ‘good’ number of accounts, including a mix of credit cards and loans, can make it easier to maintain a high score.
How much will my score drop if I close credit card accounts?
Closing credit card accounts can affect your credit score, primarily by changing your credit utilization and the length of your credit history. If closing a card raises your credit utilization—the amount of credit you’re using compared to your total available credit—or if it’s one of your older accounts, your score could decrease. The amount your score drops depends on your overall credit profile; those with shorter credit histories or higher utilization will likely see a larger drop. Therefore, before closing a card, evaluate the potential impact on your utilization and consider keeping older accounts open to maintain a longer, more stable credit history.
What’s the best way to manage multiple credit cards?
Managing multiple credit cards effectively requires careful organization and responsible spending habits. Use a spreadsheet or budgeting app to track each card’s balance, due date, and interest rate. Set up automatic payments for at least the minimum amount due to avoid late fees, and aim to pay the full balance whenever possible to prevent interest charges. Regularly review your statements for errors and ensure you’re staying within your budget. By maintaining clear records and practicing disciplined spending, you can manage multiple cards without negatively impacting your financial health.
How do I choose the right credit card?
Choosing the right credit card involves aligning it with your specific spending habits and financial goals, as detailed in our article How to Choose the Right Credit Card. Start by assessing your typical expenses to determine if a rewards card, such as cash back or travel, would be beneficial. Compare annual fees, interest rates (APR), and any introductory offers. If you frequently carry a balance, prioritize a low APR; if you pay your balance in full each month, focus on maximizing rewards. Carefully review the terms and conditions, and ensure the card’s benefits outweigh any potential costs. Your credit score will impact your approval odds and available card options, so consider this as well.
What are the signs that I have too many credit cards?
Signs you have too many credit cards include difficulty tracking due dates and balances, consistently paying only minimum amounts, and frequently exceeding your budget. Feeling overwhelmed by monthly statements or experiencing increased anxiety about debt are also red flags. If you’re relying on credit cards for everyday expenses or consistently transferring balances to avoid interest, you’re likely overextended. Additionally, if you find yourself opening new cards just to manage existing debt, it’s a clear indication you need to reevaluate your credit card usage.
