How many credit cards should I have?

in Your Money

There is no “magic number” of credit cards to have, but there are several important things to consider before you decide to open a new card account.

The number of cards you have — and how close you are to their combined credit limits — can have a significant effect on credit scores, which can hinder your ability to secure a car loan or apartment rental. Conversely, while credit scoring models don’t necessarily punish you for having too many credit accounts, it is possible to have too few.

Why too few cards could hurt your credit history

A lack of credit history makes it hard for the bureaus to provide an accurate score for you. Four or fewer accounts is generally considered to be a “thin file.” Because there are fewer clear indicators of your ability to properly use credit, lenders often view thin files as carrying greater risk.

It might seem counterintuitive, but even if you have secured one or two cards, a thin file can have a bigger negative effect on your credit score than if you had more accounts. A good example: With fewer cards to use, it might not take much spending to reach your overall credit limit.

The portion of your credit limit that you have in use, your “credit utilization ratio”, accounts for about one-third of your credit score. People using less than 10% of their credit limit generally have excellent credit scores. Because of this, having more cards and spreading spending across them can help you keep your credit utilization rate low.

So, what do the credit bureaus say?

The major credit bureaus (Experian®, Equifax® and TransUnion®) and their scoring models, suggest that five or more accounts — which can be a mix of cards and loans — is a reasonable number to build toward over time. On average, Americans have three credit cards and 2.3 retail (store) cards, according to a 2021 report by Experian. Most people build their credit portfolio as credit needs expand, due to marriage and family growth.

If you are thinking about opening a credit card for the first time – or adding another one – it’s a good idea to begin by considering how and where you spend your money. Many credit cards offer specialized rewards or other benefits that can be added perks to your regular spending. If you are a fan of rewards points, you might want to explore cards that maximize grocery, travel or gas spending or ones that offer cash back. And, speaking of rewards, it’s hard to beat the First Internet Bank VISA!

Before you apply, understand that poor-to-fair credit (scores below 670, according to Experian®), may mean that you could have difficulty being approved for a credit card and find managing even one card challenging. For example, if you’re using your cards to supplement your income and find yourself carrying balances each month, that single card might actually be one too many. In that case, you should focus on how to increase your credit score before applying for additional credit of any type.

However, if you have a good-to-excellent credit score (670-850, per the credit bureaus), you are in a better position to add a new card to your wallet. High credit scores indicate that you have a solid handle on credit usage and manage your accounts properly.

Some final credit considerations

Here’s another tip: each application for credit you make causes a “hard” inquiry with the credit bureaus, which can affect your score. Applying for multiple credit cards in a short period of time can be interpreted as a sign of credit risk. Spacing credit applications about six months apart can prevent multiple hard inquiries that hinder raising your credit score.

This might seem obvious, but if having lots of cards complicates your life so much that you miss payments, it can have long-term detrimental effects on your score. Simply put, the more credit cards you have, the more due dates and credit limits you must juggle. Automating monthly payments or changing all your due dates to the same day can help you remember to pay your balance in full.

Whether you’re starting out, working to rebuild or simply adding to your existing credit, it’s a good idea to concentrate on building good financial habits. Having a reliable income is only one piece of the puzzle. Positive traits like good organizational skills, familiarity with how to manage money and an ability to meet payment deadlines can put you on (and keep you on) a solid financial path.