Smart Money

How many credit cards should you have?

Cory

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June 16, 2023

How many credit cards should you have?

The ideal number of credit cards for a person varies depending on their individual financial goals, needs, and ability to manage credit responsibly. There isn't a one-size-fits-all answer, but here are some guidelines and pros and cons to consider when deciding on the number of credit cards to have.

Guidelines

  1. Maintain a manageable number of credit cards based on your personal financial habits and organization skills, ensuring you can track payments and due dates without difficulty.
  2. Holding at least one or two cards from major networks (Visa, Mastercard, American Express, Discover) can offer flexibility in case a merchant doesn't accept a specific card.
  3. Consider your credit utilization ratio, which is the amount of credit you're using relative to your total credit limit. It's beneficial to keep this ratio below 30%. Having additional credit cards with higher combined credit limits may help lower your credit utilization if managed responsibly.

Pros of having too few credit cards

  1. Simpler management: Fewer cards make it easier to track spending, payment due dates, and annual fees, reducing the risk of late payments and penalties.
  2. Reduced temptation to overspend: With fewer cards, you may be less likely to spend beyond your means or accrue excessive debt.

Cons of having too few credit cards

  1. Limited credit building: Responsible use of multiple credit cards can help improve your credit score over time, as lenders may see you as a lower credit risk.
  2. Lower rewards potential: If you only have one or two cards, you may not be maximizing the rewards available, such as cashback, travel points, or specialized perks for certain spending categories.

Pros of having multiple credit cards

  1. Improved credit score: Having and responsibly managing multiple credit cards can have a positive impact on your credit score by boosting your overall credit limit and demonstrating responsible credit usage.
  2. Various rewards and perks: Each card can offer unique benefits, such as rewards for different spending categories, travel perks, or introductory offers. By strategically choosing your credit cards, you can maximize the value of your spending.

Cons of having too many credit cards

  1. Complexity: Managing multiple cards can be time-consuming and challenging, as you need to keep track of various payment due dates, fees, and account details, increasing the risk of missed payments or overspending.
  2. Increased temptation to overspend: The higher total credit limit across multiple cards might tempt you to accumulate more debt, leading to potential financial issues.
  3. Potential negative impact on credit score: Applying for multiple credit cards within a short period can result in multiple hard inquiries on your credit report, which may temporarily lower your credit score.

Ultimately, the number of credit cards a person should have depends on their individual financial goals, needs, and ability to manage multiple accounts responsibly. It's crucial to find the right balance of cards to build credit, maximize benefits, and maintain financial stability without being overwhelmed by the associated management responsibilities.

Additional information

Citations

[1] https://www.myfico.com/credit-education/credit-scores/payment-history

[2] https://www.experian.com/blogs/ask-experian/credit-education/score-basics/credit-utilization-rate/

[3] https://www.equifax.com/personal/products/credit/monitoring-and-reports/

[4] https://www.myfico.com/credit-education/credit-scores/credit-mix

[5] https://www.myfico.com/credit-education/credit-reports/credit-checks-and-inquiries

[6] https://www.equifax.com/personal/education/credit-cards/what-is-a-secured-credit-card-do-they-build-credit/

[7] https://www.myfico.com/credit-education/credit-scores/length-of-credit-history

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