Well, well, well, look who’s ready to dive into the wild world of credit cards! Let’s take a trip down memory lane, shall we?
The first credit cards were issued by Diner’s Club in 1950 and were accepted by a whopping 27 restaurants in New York City. But those were just the opening salvo.
Eight years later, the real mavericks at BankAmericard and American Express unleashed the first retail-ready credit cards. From there, it was game on for the financially free spirits!
Fast-forward to today, and we’ve 191 million American credit card users, with 50% having at least two cards (13% have five or more).
But with great purchasing power comes great responsibility, and that’s where the age-old question rears its head: “How many credit cards should I have?” This guide is about to solve that conundrum. Get ready to embrace your inner credit card disrupter and conquer the world, one swipe at a time!
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How many credit cards should I have?
Unfortunately, the answer to this one is also the most boring; the number of cards you should have depends on several factors.
Most people are fine holding between one and three physical credit cards, as that’s an easy number of accounts to manage. Those who can handle their financial affairs better than others may be able to carry more than three.
Finding the answer in your unique case requires a dash of personal inventory. Consider how the cards will impact your credit score, whether you can afford the interest fees, what your spending habits are, and whether your wallet has enough empty slots.
Recommended: How Many Credit Cards Can You Apply for At Once?
How many cards are too many?
For most consumers, managing an excess of credit cards can be difficult. Overseeing the payments and fees necessary to keep up with a dozen accounts can be a huge burden.
If you’re having trouble making payments, accruing debt, paying out annual fees, and seeing your credit score damaged, it may be a sign that you should pay down and close a few credit card accounts. If credit card applications are declined, it may be because you have too many open. Alternatively, you might have a high utilization ratio.
How does having multiple credit cards affect your credit score?
As with things like coffee, social media, and snooze buttons, multiple credit cards can have both positive and negative effects on your life. The most critical consequences involve your credit history and score. Here are a few factors that can be affected.
Credit utilization
Credit utilization is expressed as a ratio: How do your credit card balances compare to your credit limits? For example, with a balance of $3,500 and a limit of $10,000, your credit utilization is calculated by dividing your balance by your limit ($3,500 divided by $10,000 = 3.5) and multiplying the result by 100 to get a percentage (35%).
Typically, lower credit utilization ratios indicate that you use credit responsibly. Having multiple credit cards can result in higher credit limits on new cards. However, they can also lead to spending more than you can afford.
Payment history
If you faithfully make payments on all your accounts, it reflects positively on you and can occasionally atone for a missed payment. But racking up too many missed payments can damage that stellar history.
Credit age
Credit bureaus and lenders love to see a long credit history — the length of your credit usage. Making regular payments over time can only strengthen your credit history and score. However, frequently opening and closing credit accounts can be a warning sign of skittish credit use.
Credit mix
The most positive effect of multiple credit cards is that they reflect your financial diversity. A healthy credit mix implies that you’re managing your credit debt responsibly (if you’re keeping up with payments) in various types of credit accounts.
New credit
A history of multiple credit cards can make it easier to open new credit accounts. If you maintain low balances, your credit utilization ratio could be lower, and more avenues for credit could open up.
However, it could result in more credit inquiries (or “hard inquiries”) from new sources. In turn, this leads to a temporary impact on your credit score, fairly or otherwise.
What are the potential issues of having multiple credit cards?
Too many credit cards can have unexpected, unfortunate, and annoying consequences. Here are a few of the worst consequences and how to avoid them.
Credit card debt accumulation
Especially if your spending is a tad undisciplined, multiple credit cards can pile up excessive debt that can spin out of control. Make budgeting, debt consolidation, and regular payments major priorities. If you can’t afford something, try saving to pay upfront instead of using credit cards.
Annual fees for each credit card
Some cards charge excessive annual fees, and most have far higher interest rates than other installment debts (mortgages, student loans, etc.). Before you apply for a credit card, double-check the fees charged. If you’re burdened by annual fees and interest charges, consider canceling or downgrading the cards where the costs outweigh the benefits.
Difficulty tracking and managing multiple payments
Unless you’re extraordinarily talented with spreadsheets, you risk missing payments and falling behind when managing many credit cards. To avoid this, stay true to your budget and keep your balances low.
Financial apps make these steps much easier. If possible, schedule automatic payments to cover at least the minimum balance due every month.
Temptation to overspend beyond your means
Don’t view credit cards as open invitations to go on spending sprees. This can lead to unmanageable balances, higher debt, lower credit scores, and stern looks from your accountant. With all that in mind, set firm spending limits on your credit accounts. And if necessary, consider not taking all your cards when shopping.
Increased exposure to fraud or identity theft
With more credit cards, you may be vulnerable to criminals who could target your finances for fraud or create fake identities — thanks, 21st century! To combat these crimes, make sure to:
- Stay on top of your account statements.
- Create push notifications for unauthorized account activity.
- Use security methods like complex passwords or two-step authentication.
When you come across suspicious charges, report them to your card issuers immediately.
Multiple credit cards = more responsibility
The American credit system reflects a healthy economy and consumer choices. But hoarding credit accounts like Pokémon trading cards isn’t a sign of financial power, especially if your account balances are excessive.
Know your limits, stay responsible, and keep on top of your account balances. Your credit score will thank you later.
After reading this, if you feel a new credit card is the right next step, MoneyLion can help. MoneyLion can help you explore a wide variety of credit card options tailored to different needs and preferences.
FAQ
How often should you apply for a credit card?
Frankly, only apply when absolutely necessary. Inquiries are part of the application process, and multiple inquiries can lower your credit score.
Is seven credit cards too many?
For most people, the answer is yes. Those who can afford to make the monthly payments and are diligent about staying on top of payments and balances can handle seven cards.
Is there a limit to how many credit cards you can have?
While there’s not a strict limit, more credit cards require more attention to financial responsibility.
Is it bad to have too many credit cards with zero balances?
While it’s better than having too many credit cards with high balances, having too many unused ones may make financial management more difficult.
How many business credit cards should I have?
Use the same self-analysis that you would (or should) use with your personal credit cards and expand it to your business needs. The number of cards your business requires depends on your goals and financial management skills.
