How Many Credit Cards Should You Have?
Written by: Kristy Welsh
Last Updated: July 25, 2017
If you're asking yourself how many credit cards you should have in your wallet, it's likely for one of two reasons:
- You're thinking about getting more credit cards
- You're thinking about letting some go
Let's get number two out of the way first.
It is almost never a good idea to close credit card accounts. This is especially true of older accounts that are contributing to the length of your credit history. One exception would be if you cannot seem to resist grossly mismanaging your credit card debt and, in turn, making your credit scores even worse, not to mention your financial situation.
As for scenario number one, there is no clear-cut answer.
No matter how many credit cards you already have, it could very well be a good idea to apply for more of them. It's all in how your credit cards are managed.
Having one credit card that you manage responsibly is far more beneficial than having five credit cards that you abuse on a monthly basis.
Bottom line, there is no magic number of credit cards to give you the ideal credit score. The magic is in how you get them, how you use them, and how long you've had them.
How to Get a Credit Card
Don't Apply For Multiple Credit Cards at Once
Every time you apply for a credit card, it counts as a hard inquiry on your credit reports, which can have a negative impact on your credit scores. Obviously, this is unavoidable, and really nothing for you to worry about, provided you keep credit card applications at a minimum.
If a hard inquiry does affect your scores, it may be by as little as 5 points, but could have a greater impact if you have very few credit accounts or a short credit history. One or two hard inquires is nothing to worry about, but avoid racking up any more than that within a short period of time, as a flurry of credit card applications demonstrates risky behavior.
Apply For Credit Cards You Are Confident You'll Qualify For
There is never any guarantee that you will be approved for a credit card, so check to be sure that the card you're applying for is intended for borrowers with your credit score. In other words, if you have a credit score of 650, you do not want to apply for a credit card that states it's intended for those with Excellent credit. This minimizes the possibility for being turned down and, in turn, racking up more hard inquiries via subsequent applications.
How to Use Credit Cards
Keep Credit Utilization Ratio Below 30 Percent
Your credit utilization ratio is the percentage of your available credit that you use per month. As a rule, try not to utilize more than 30 percent of it. So for example, if you have $10,000 in available credit, you do not want to charge more than $3,000 a month. Your credit utilization ratio represents 30 percent of your credit score, so shooting for the ideal percentage is critical (e.g., 10 to 25 percent).
Charge Only As Much As You Can Afford To Pay Off Each Month
Credit cards should be used as a tool for establishing credit, not as a source of income. Never charge more to your credit cards than you can afford to pay by the end of the month. The goal: a zero balance. This not only saves you from paying interest fees, but also eliminates the possibility that your credit card debt could get out of control.
Make Monthly Payments On Time
Ideally, you're paying off the balance every month before your due date. But if you get into a situation where that's not possible, at the very least make the payment on time. Pay as much as you can or, worst-case, the minimum payment required.
How Long You've Had a Credit Card
Don't Close Old Credit Cards
The length of your credit history counts for 15 percent of your credit score. So even if you have an old credit card that never gets used, resist the temptation to close it, as losing this available credit will shorten your credit history. It also decreases your available credit, which negatively impacts your credit utilization ratio.
Not sure how far back your credit goes?
If it's been more than a year since you've done so, get free copies of your credit reports from AnnualCreditReport.com. From there you can request copies from all three of the major credit reporting bureaus - Experian, Equifax, and TransUnion.
Make this a yearly habit, reviewing your credit reports to ensure that all your responsible credit card management is being accurately reported, as it's these listings that determine your credit score.