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How many credit cards do you need?

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Experts indicate that most Americans carry between five and ten credit cards in their wallets, with some plastic-loving souls holding as many as 50 credit cards at one time. (Although perhaps only George Constanza's massive wallet could contain all those cards simultaneously!) But what is the right number of credit cards for you? Should you have more (or fewer) credit cards than you do right now?

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The answer is that there is no exact number of credit cards that you should have at a given time. According to Experian, one of the three major credit reporting agencies, there is no right number of credit cards for everyone. Instead, your ideal figure depends on the combination of how much you spend and how much debt you can pay off. You need to consider how many credit cards will best allow you to build a solid credit history.

In terms of the balance on the credit cards you hold, the ideal range is between 25 percent and 50 percent of the available credit on each credit card. Once you pass that level, potential creditors begin to view you as a risk for repayment, in the event you encounter a major financial obstacle, with your ability to repay falling as your debt rises. If you make a major purchase that surpasses 50 percent of your credit limit, it is a smart decision to split the purchase between two cards. Being able to do this is one of the benefits of having more than a single card. Lenders do not like to see that your credit card is almost maxed out, as that causes them to consider you a risk – someone who is using too much credit and has trouble paying off debt.

It may be easier for you to keep track of a smaller number of credit cards. This includes being aware of what your various interest rates and fees are, and any changes that may occur with them or how they are applied. Having more plastic means there are more bills to pay. If you hold just two or three credit cards, it could be easier to stay on top of your balances and spending. And avoiding late fees may be less of a concern when you can easily recall all your payment dates. If you move, changing addresses for many cards may be a hassle. If a card expires, you will need to keep track of when the new one arrives to avoid potential fraud. This becomes tougher when you hold many credit cards.

However, that does not mean the solution is to simply close old credit card accounts as you add new ones. Debt advisers likewise warn cardholders against closing too many credit cards at one time, as doing so will worsen your debt-to-credit ratio. If you have $10,000 of potential credit and a $5,000 balance, you are using 50 percent of your potential. If you then close a credit card with a $2,500 balance shortly thereafter, you will have $5,000 of debt and only $7,500 of potential, hiking your ratio to 67 percent.

Additionally, closing your oldest accounts may cause creditors to penalize you, as they are looking for a lengthy and successful credit history. The age of your account with a credit card lender is one of the factors influencing your credit score. When leaving old accounts open, you should try to use the credit card at least once every six months or so. If you do not, the danger is that the issuer will close the card as inactive, which will hurt your credit report.

On the flip side, opening multiple fairly new credit card accounts has its downsides. If you hold a large batch of credit cards, issuers will be aware that you have a lot of credit already available and may keep you at a relatively low credit line for each of their cards. Some experts believe that consumers should hold fewer cards with higher credit limits rather than more cards with lower limits, even if the total credit limit is the same in both cases. For example, holding two cards with $5,000 credit limits is better than 10 cards with $1,000 credit limits. The reason is that your credit history is impacted by the credit lines available to you and your history in making timely payments on outstanding balances. If you can more successfully keep up with payments on fewer cards that have higher limits, it will be better for your credit history.

When carrying multiple credit cards, it is a good idea to hold major Visa, MasterCard, American Express or Discover Card credit cards, as they are the most widely accepted. If you have trouble paying off your credit cards, it might be wise to find a credit card with a low interest rate to use in emergencies. Also, you may want some of your credit cards to be rewards credit cards that provide cash back, bonus points or airline miles. Using the right card at the right time will allow you to get something in return from your credit cards. As long as you pay this rewards credit card off every month, finding one with a low interest rate in less of a concern.

When holding a variety of credit cards, it is important to have credit cards that help you do what you want. Perhaps you need a small business credit card if you are an entrepreneur, as adding this type of card to your collection will enable you to accomplish goals you could not achieve with a regular consumer credit card alone.

Although there is no exact number of credit cards a consumer should carry, there are a number of factors that will help you decide the right number of credit cards for you. The main thing to remember is that you always want to be able to manage your account. Additionally, it is necessary that you know the interest rates for each credit card, your outstanding balances, and other card features. Your credit card debt is part of a larger picture that includes such things as your mortgage, car loans, and student loans in comparison to your income. Your goal, regardless of your card number, should be to keep your total debt to income ratio below 36 percent and not let your card credit line utilization exceed 50 percent, in total or on any one credit card.

Published: June 22, 2006


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