One credit card? Or many? How to decide

Your credit history, appetite for rewards will help you choose solitaire or full deck


How many credit cards is too many?
How many credit cards is too many?

Visa? MasterCard? American Express? All of the above and more? When it comes to credit cards, there are pros and cons to owning just one card or playing with a full deck. Depending on your fiscal self-control and other factors, there's a winning hand for you.

Playing solitaire: Using just one credit card
Having just one credit card means less temptation to get into trouble by overspending, says Rod Griffin, director of public education at credit reporting agency Experian. Getting out of trouble is easier, too. "If you do become over-indebted, you can stop using the card, start paying it down and get out of trouble more quickly."

For most people, managing one card is easier than keeping track of multiple cards -- and bills. "You have only one bill to worry about paying on time," says Can Arkali, principal scientist at the credit scoring company FICO.

If you're the type of person who tends to have your credit card charged to the max, then the more cards you have, the more debt you'll have.

-- Dara Duguay
Credit Builders Alliance

On the other hand, having only one credit card restricts your access to some services and merchants, Griffin says. If the store or other provider doesn't accept your card, then you can't charge the item or service.

Also, if you max out that one card and then have a legitimate emergency -- not a fabulous sale on your favorite shoes, of course -- you're out of luck, says Dara Duguay, executive director of Credit Builders Alliance.

As for building a credit history, it's possible to do so with only one credit card, but it takes longer. "If you use one credit card well, keep the balance low, make a small purchase every month and then pay the balance in full, it will help you build a strong credit history and build good credit scores," Griffin says. "It may take longer than it would having two or three credit cards. But you can have very good credit scores with just one credit card."

Credit Builders Alliance recommends three credit lines to build a credit history -- a mortgage, car loan and a credit card. A young person who doesn't have a mortgage or car loan might want to consider a second credit card to help build that credit history, Duguay says.

Full deck: Using multiple credit cards
Having multiple credit cards can give you plenty of options in case one is lost, stolen or not accepted. But a wallet bulging with credit cards can trick you into thinking you're flush with cash.

If you have good self-control, having a number of cards with little or no balance may help your credit utilization ratio, which is simply your total balances divided by your total credit limits, Griffin says. The more available credit you have, the lower your utilization ratio will be, assuming you don't spend more -- and that helps your credit score.

Disciplined rewards chasers also can boost their rewards points through the sign-up bonuses that come with new accounts, and by using different cards for different categories of spend. For example, you may have one card that gives you 3 percent cash back for gas spending and another that gives you extra points for travel purchases.

On the other hand, those benefits can be quickly wiped out if you don't pay off your balance every month. "If you're the type of person who tends to have your credit card charged to the max, then the more cards you have, the more debt you'll have," Duguay says.

You'll also have more hassles if your credit card-stuffed wallet is stolen. You'll need to contact each card issuer to report the theft. And if you autopay bills on different cards, you'll have to sort out which card matches each account as opposed to calling only one or two companies. "The more cards you have, the more unraveling you have to do," Duguay says.

Know when to hold 'em
What counts as too many cards for one consumer might be just enough for another cardholder. To learn whether you've dealt yourself a good hand, get a copy of your credit score and look at the risk factors, Griffin says.

If the risk factors say you have too few revolving accounts, then consider opening another account. If the risk factors say you have too many revolving accounts, then you should probably consider closing an account or three, Griffin says.

Finally, if the risk factors say your utilization rate is too high, then it's time, or even past time, to get your balances under control. "If your risk factors indicate your utilization rate is too high, you need to pay down the balances on one or more of your credit cards," Griffin says. "High utilization is a sign that you overspend with credit and are taking on debt you may not be able to manage. Rather than opening new cards, which simply increases temptation and results in greater debt, you should stop using your credit cards and pay down your current balances."

Consider financial goals before you act
Before you start opening or closing accounts, look ahead. If you're planning to apply for a mortgage, car loan or other major loan in the next three to six months, don't rush to close accounts, Griffin says. Closing an account affects your credit utilization ratio and will cause your credit score to fluctuate.

"If you go from using 30 percent of your available credit to 100 percent of your available credit because you simply have less available credit, this could negatively impact your score," FICO's Arkali says.

You don't need a lot of credit cards. One, two or three is sufficient from a credit reporting standpoint.

-- Rod Griffin

For example, consider you spent $1,000 on a vacation spread out over three credit cards with a $1,000 limit each. You have used 33 percent of your available credit. But if you close two of the accounts, that same $1,000 suddenly is 100 percent of your available credit.

Keep in mind, however, that closing accounts does not immediately harm your credit history, another component of your credit score. "When you close a long-standing account, it does not suddenly disappear from your credit report," Arkali says. "The FICO score will continue to consider a closed account when it determines the length of your credit history, a category which makes up 15 percent of the score's calculation."

Experian retains the history linked to an account 10 years after the date it's closed, Griffin says. "You don't have to worry about losing the history, just the utilization" and credit line, he says.

Both experts also advise caution when opening new accounts. "It's best not to apply for new credit either," Arkali says, when you think you might be in the market for a new home or car loan. "That creates instability in the credit history, which can cause fluctuations in the credit score." Any new accounts lower your average account age, which will have a larger impact on your FICO score if you don't have a lot of other credit information.

Although you might think that those new accounts would improve your credit utilization rate, that strategy can backfire, Griffin says. "Opening a bunch of accounts in a short time is a sign of credit risk and can offset the benefit of increased credit limits," he says.

In addition, new credit requests, called "hard inquiries," can also temporarily ding your FICO score a few points, Arkali says. "Rapid account buildup can look risky if you are a new credit user," he says.

The sweet spot
For most people, one to three credit cards is probably the winning hand -- with two being the sweet spot. "My advice always was, 'You don't need more than two,'" says Duguay, who worked as a credit counselor in the 1990s. "It's good if you can limit yourself to two or no more than three."

Says Griffin: "You don't need a lot of credit cards. One, two or three is sufficient from a credit reporting standpoint."

But it's not the cards you have. It's how you play (manage) them.

"I actually know somebody who collects affinity credit cards with pictures on them," Griffin says. An affinity card is affiliated with an organization, such as a school or charity or sports team. "He has 100. He has perfectly fine credit scores. What matters is how you use those accounts. Credit scoring is less about how many cards you have than how you manage those cards." 

See related: Can too many credit cards mess up your credit score?, Closing 50 cards without damaging credit score

Published: February 22, 2016

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