Can You Have Too Many Credit Cards?

 

Most of us use credit cards daily. With credit card companies offering outstanding benefits and enticing sign-up bonuses, it can be tempting to get new cards on a regular basis.

This begs the question, how many credit cards should I have?

There is no golden rule response to this question. It makes sense for some people to have more credit cards than others. In July 2019, Zheng Xiangchen set a Guinness Book World Record for holding 1,562 valid credit cards.

I’m not sure how many credit cards is too many but that definitely counts. I don’t need 1,562 cards.

Before you pull the trigger on all the snazzy signup offers, there are several factors that need to be taken into consideration.

How The Number of Credit Cards Will Impact Credit Score

The number of credit cards you have will have a direct impact on your credit score.

In some cases, having more credit cards can help boost your credit score. Before we get into the specifics, you need to understand how your credit score is calculated.

Your FICO score is comprised of five different categories, each carrying a different weight:

  • Payment History — 35%
  • Amounts Owed — 30%
  • Length of Credit History — 15%
  • New Credit — 10%
  • Credit Mix — 10%

Payment History

This is the most significant factor in determining your credit score. It consists of credit payments from all forms of debt (car payments, mortgage, loans, etc.), but credit card payments hold substantial weight.

That’s because credit card companies tend to be unforgiving when it comes to late payments. If you’re tardy or miss a payment, it will be reported to credit bureaus immediately, which has a negative impact on your score.

So if you’re juggling too many credit cards and forget to make a payment, it can significantly hurt the largest factor of calculating your credit score. In other words, never get more cards that you can comfortably manage and pay every month. Otherwise, it won’t be worth it at all.

Amounts Owed

This is also referred to as your credit utilization or debt-to-credit ratio.

Credit utilization is calculated by measuring the amount of your outstanding credit card debt against your total available credit. In short, it measures how close you are to reaching your credit limit.

Just because you have a $10,000 credit limit, it doesn’t mean you should be charging $10,000 per month. This will raise your debt-to-credit ratio and effectively lower your credit score.

Always keep your credit utilization below 30%.

In this case, having multiple credit cards can help boost your credit score because you’ll have a lower debt-to-credit ratio. If your average monthly credit charges are more than one-third of your total credit, getting another card is one way to increase your score.

Getting new cards is actually the easiest way to boost your credit score, especially if you haven’t asked for a limit increase. If your credit score has improved a lot since the last card you got, you could get a new card with a limit that’s 2-3X the limit of your old one. That will dramatically lower your credit utilization assuming you keep your monthly spending constant.

Length of Credit History

Your length of credit history is determined by a few different factors.

  • Age of your oldest credit account
  • Age of your newest credit account
  • Average age of all credit accounts

The time since new accounts have been established and how long it’s been since certain accounts have been used also fall into this category.

Getting a new card, or multiple new credit cards will change the average of your credit accounts. Even if you have old accounts, that average age can easily be dragged down by opening too many cards in the present.

But this is a short term hit. Over time, that average gets older and older. Eventually, you’ll have a batch of really old accounts that give you a boost.

New Credit

While new credit isn’t weighted as heavily as other factors, it still has an impact on your credit score. Each time you open a new line of credit, expect your score to drop at least a few points.

Your score can actually drop twice when you’re applying for a new credit card.

  1. When the creditor makes the initial inquiry on your credit report.
  2. When the account is officially opened.

Applying for too many credit cards in a short period of time is a big mistake. Not only will the inquiries lower your score, but it’s often a red flag for credit bureaus. So go slow as you build out your ideal mix of cards. And never apply for new cards before taking on a major loan like a mortgage or a car loan.

Credit Mix

Your credit mix shows the different types of credit accounts you have. People with high credit scores have a credit portfolio that includes credit cards, auto loans, mortgages, retail accounts, and installment loans.

If your entire credit mix is comprised of just one type of account, it won’t be as high as it could be.

The Average Number of Cards People Have

According to a recent study, the average American has 2.6 credit cards. However, this number is a bit skewed since it includes the percentage of Americans who don’t have any credit cards.

If you eliminate that group and only include Americans who have at least one credit card, the average jumps up to 3.7 cards.

Let’s break these numbers down even further:

  • 29% of people have zero credit cards
  • 33% of people have 1-2 cards
  • 18% of people have 3-4 cards
  • 9% of people have 5-6 cards
  • 7% of people have 7+ credit cards

As you can see, the biggest chunk of American credit card holders falls in the 1-4 range.

This doesn’t necessarily mean that the national average is the perfect number for you. In fact, the same study revealed that people with an average FICO score above 800 (which is excellent) have 10 open revolving credit lines.

With that said, this includes other types of revolving credit, such as a bank line of credit. But most people won’t have more than one of those. So it’s safe to assume that the average American with a credit score above 800 has 4 or more credit cards.

This seems logical since people with high credit scores will qualify for more cards with attractive terms. So it gives them more of an incentive to have additional credit cards.

However, this takes time. If you currently have a credit score above 800 with just two credit cards, applying for five new cards tomorrow is not a good idea. This will lower your score for all of the reasons that we previously discussed.

Does The Number of Cards Really Matter?

In most instances, yes—the number of credit cards you have does matter. Having too many credit cards or opening too many credit accounts will ding your credit score.

Low credit scores can hurt your ability to get favorable loan terms. So if you’re eventually planning to buy a house or a car, you’ll want your credit score to be as high as possible. This will save you money in the long-term on interest payments.

If you have a low credit score, you could even run into problems getting approved to rent an apartment.

Other potential issues with having too many credit cards include:

  • Paying high annual fees
  • Losing track of your bills and payment status
  • Falling into the trap of spending more money

With complexity comes more chances to make a mistake. One missed payment on a credit score will do more damage to your credit score than all of your optimizations combined.

If you’re not 100% confident in your ability to never miss a payment, I recommend sticking with 1-2 cards. And only get 4+ if the extra perks are truly worth it to you. Err on the side of having fewer cards rather than more.

Why Have More Than One Credit Card?

Having more than one credit card is a great way to build credit. If you have a long history of making on-time payments with multiple creditors, your score will increase.

Getting new credit cards will lower your utilization ratio, which is another factor in having a strong credit score.

When your score is high, it’s an excellent opportunity to apply for a new card. Just make sure you understand how your credit score will be impacted by this decision. Don’t get a new credit card if you’re planning to apply for a mortgage in the subsequent months.

Having more cards is a great way to unlock a ton of perks. Especially across travel credit cards, you could make a case for having:

  • A Chase rewards card
  • An American Express rewards card
  • 1-2 airline cards
  • 1 hotel card

That’s 5 cards which would give you broad access to airport lounges, tons of flexibility on how to redeem points, perks on most of your flights, free nights and room upgrades to hotels, and free status to airline, hotel, and rental programs which give even more perks. It’s definitely an advanced rewards system for folks that love to travel but still simple enough to manage.

Even having 1 extra airline card can unlock great perks when traveling. It really comes down to if you think the extra annual fees are worth the perks that you get on each card.

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