Credit cards are excellent financial convenience and security instruments. They’re useful when you don’t have any cash on hand or don’t want to bring cash with you while shopping. They may also come in handy when purchasing huge items such as a new television or significant appliance.
They’re particularly useful while traveling, since they may give you with a variety of travel-related benefits including zero liability fraud coverage, card replacement in the event of loss or theft, and vehicle rental insurance, as well as possibilities to earn points.
But is it possible to have too many credit cards? According to conventional financial thinking, carrying too much credit card debt might harm your credit score. This raises the issue of how many credit cards is “too many”?
- Having too many open credit lines, even if they aren’t being utilized, might lower your credit score by making you seem more dangerous to lenders.
- Having many active accounts might make it more difficult to keep track of spending and payment deadlines. Late payments and credit use that exceeds 30% of a card’s credit capacity may drastically damage credit ratings.
- Closing older accounts might affect your credit score by lowering your average age of credit.
- In certain situations, obtaining additional credit cards might help you improve your credit score if the extra credit lines decrease your total usage ratio.
Consider the following factors
There are a lot of elements that might help you figure out how many credit cards are best for you. Some individuals believe that a limited number of cards—one to three—is enough, while others open several cards throughout time as a result of fresh offer incentives they get in the mail or online.
However, how you handle them and the conditions under which you receive them are more important than the number of credit cards you have.
However, it may make sense to have one major card for most expenditures and one or two secondary cards as backups or for specific reasons (like using for a particular spending category that is rewarded with bonus points or cashback with a certain card).
It’s also worth remembering that having too many open credit lines in relation to your income, even if they’re not being utilized, might make you seem hazardous to lenders and lower your credit score.
How Is Your Credit Score Calculated?
Before we get into the nitty-gritty of credit card use, it’s crucial to understand how your credit score is determined. This might help you figure out whether you have too many credit cards or if the ones you have are sufficient. Here’s a short rundown of the important components of your credit score in relation to your credit card use.
- Payment history
This is the most important component, accounting for 35% of your credit score. Although all of your monthly payments from all of your debts are included in, your credit card payments are the most important. When it comes to late payments, credit card issuers are the least tolerant, and they are fast to record late payments to credit agencies.
- Debt-to-credit ratio
Also known as credit usage, this ratio compares the amount of debt you owe on your credit cards to the amount of credit you have available—basically, how close you are to maxing out your credit cards. Your credit usage accounts for 30% of your overall credit score. If the ratio surpasses 30%, it will lower your score.
- Credit history
People who have many credit cards may find themselves in problems here. Over time, establishing a responsible history of on-time payments enhances your credit score. For all of their cards, those with good credit ratings have an average age of 11 years. This factor accounts for 15% of your total score.
- New credit
Adding a new credit account may lower your credit score by a few points, first when the creditor does a credit inquiry and then when the account is officially created. New credit accounts for 10% of your total score.
- Credit mix
Your credit mix accounts for 10% of your overall score. Credit bureaus are interested in seeing how you manage debt across a variety of credit cards. Credit cards, retail accounts, installment loans, auto loans, and mortgages should all be included in your credit portfolio.
When you have a limited credit history, adding too many new cards decreases the average age of your credit accounts, which might lower your credit score.
How Many Cards Should You Carry?
Your credit score is directly influenced by the number of credit cards you have and how you use them. Focus on creating a credit history with one or two cards and paying off your debt in full each month if you’re a new credit card user. Adding credit cards for particular goals, such as a solid rewards program or improved travel-related advantages, might be beneficial if done gradually over time rather than all at once.
If you’ve been using credit cards for a while, adding another card with a lower interest rate might save you money if you intend on carrying new balances, presuming you qualify for better conditions.
You can also consider transferring a debt to a new card with a 0% introductory APR for new cardholders. However, you should still strive to maintain your debt-to-credit ratio below 30%.
According to Gallup, the average number of credit cards carried by cardholders
Dealing With An Excessive Number of Cards
If you fear you have too many credit cards or ones you don’t use, the worst thing you can do is close accounts without thinking about the consequences to your credit score. Closing older credit cards might result in a shorter credit history, which can negatively impact your credit score.
Payment data from cancelled accounts gradually disappears from your credit record, lowering your score. If you have outstanding amounts on your credit cards, closing them decreases the amount of accessible credit, which might damage your debt-to-credit ratio or credit utilization.
It is preferable to keep your credit card accounts active and just put these cards on hold. If the card issuer sends you a notice about inactivity, use the card for a short period of time to keep the account from being cancelled.
That credit card may also be kept as a backup, particularly if it has a higher interest rate or credit limit. Keeping this one in the back of your mind may help you cut expenditures and, if it has a larger limit, keep your spending under control.
Calling the issuer to swap to a better product rather than cancelling the account entirely is another option for an older, unused credit card you may have received when you first started out, maybe as a college student.
You may then replace the card with one that you find more handy while keeping your account history. You may have to reject any new cardmember initial bonus offers, but it’s a better alternative than cancelling your old account and losing crucial credit history.
Obtaining a Second Card
Even if they’ve eased down a little, credit card issuers continue to push customers to create accounts. You’ve probably received one of those mailers informing you that you’ve been pre-approved for a credit card. Should you succumb to the temptation? Sometimes, at least. Several possible legitimate reasons to consider applying for an extra card are as follows:
- Obtaining a low-interest loan
- Transferring a debt, particularly if there is a promotional 0% APR deal available.
- An enticing welcome bonus as well as continuous benefits
- Increasing your credit limit to reduce your debt-to-credit ratio
- Obtaining a higher credit limit if one is offered in the deal
If you have a number of credit cards, it might harm your credit score in the following ways:
- You’re unable to make payments on your present debt.
- Your outstanding debt is higher than 30% of your overall credit limit.
- You’ve crammed in too many cards in too little time.
- You don’t have a variety of credit accounts (i.e., you don’t have a mortgage, vehicle loan, or other sorts of credit in your name).
However, don’t immediately start cancelling accounts to cut down on the amount of cards you have. That is never going to improve your credit score. Pay down any outstanding amounts and intend to keep the oldest card at the very least.
Instead of keeping it in your wallet, put it, along with any other older unused cards, in a secure location. Then, every year or so, utilize it to keep it active and look into product-trading opportunities with your issuer.