The thing with credit is you need it to build it.
Credit scores are factored by taking into account how regularly you pay your bills, how much debt you hold in total, the length of your history, newly opened accounts, and different types of credit you have. If you have no accounts, then you have no credit.
But I remember an argument with a friend not too long ago, in which we had exact opposite views on the ideal amount of credit cards to have to maximize our scores. I have two personal credit cards, one that I use and the other I hold for emergencies, one business credit card, and one store credit card. While I had thought that was more than enough, my friend had recently opened her 11thcredit card account and apparently had no plans of stopping. Granted, she spread out application periods and didn’t use most of the cards, but I couldn’t imagine having that many lines of credit open on my own report!
It turns out, we both had entirely different financial situations in general. I held barely any debt, whereas my friend and her husband, I later found out, had nearly six-figures worth of outstanding balances to manage. Did that change the impact of the number of cards we had?
So, how many credit cards should you have for good credit? As it did with my friend and me, it will depend mostly on who you are, how you spend, and what your financial situation is.
How Credit Utilization Impacts Your Score
Credit utilization is the amount of your total available credit that you currently use. One of my personal cards has a $25,000 limit, and the other has a $12,000 limit, my business card has a $22,500 limit, and my store card has a $5,000 limit. On paper, I have $64,500 worth of credit available. Across all of my cards, my current balance is $2,000, which means my credit utilization is about 3% – well below the recommended 30%.
In my friend’s case, she needed to keep opening credit cards to boost her total credit limit and relieve her ever-growing utilization. Instead, she could have applied for a personal loan to pay off her cards with Payoff, allowing her to work on responsible financial management moving forward.
The problem with opening new cards whenever you want to put your credit utilization back into balance is that your score will take a small hit whenever lenders pull your report. But you may also find that lenders will stop issuing you cards with high-enough limits to make an impact on your total utilization. Lenders can tell when you’re trying to outrun a growing balance, and they don’t want to be the last ones to offer you credit.
How Payment History Impacts Your Score
Credit cards will help your credit score only if you use them responsibly. FICO considers payment activity as 65% of your score, so your first priority should always be managing any balances you have. If too many credit cards are too tempting, it’s better to focus on using what you have responsibly before thinking about opening new accounts.
How Credit History Impacts Your Score
How many credit cards should you have for good credit? In the case of utilization, it depends on your balance and spending activity. But when it comes to credit history, the number of credit cards you have can also impact whether your score goes up or down.
The average time your accounts have been opened determines your credit history. I opened my first credit card in 1998, and because I still have it, my credit history gets a boost. In fact, one thing that you can do to extend your history artificially is to become an active user on a parent’s card, which means you get a bump to your history as long as that card is opened – even if it was before you were born.
If you keep closing cards, you’re cutting your history down.
What Happens If Your Card Is Cancelled
I carry all of my cards with me, except for my store card. In fact, I don’t even shop at the store anymore, nor do I even know if there is one close by. But I’ve had it since 2000, and I know that it helps keep my score in a healthy place, so a few times a year, I buy something online using it. Why not just cut it up and throw it out? Because inactivity is the single biggest reason card issuers close user accounts, which I learned the hard way. If you don’t spend on the card, issuers aren’t making money and just have to spend to keep your account active. They’d prefer to cut you free at this point.
You’re probably not going to get a heads up either if you have a card that is about to be canceled. Most issuers worry that if they tell you it’s happening, you’ll make as many charges as possible to “game” the system.
You can avoid having an issuer close your card by using it. Set an alert to remind yourself yearly, quarterly, or monthly, and charge a small amount that you can pay off in full. The card will remain active, and your credit will stay intact.
Why You Should Keep Those Cards Open
The problem with having a card canceled? All of a sudden, your credit is thrown out of balance. Your utilization could go way up if that card had your highest credit limit. My 3% current credit utilization would look quite different if the card with a $25,000 limit was closed.
When a card account is closed in good standing, that positive note stays on your account for ten years. That keeps your credit history intact, but what happens in year 11? If the card you closed was the one you’ve had for 20 years, your credit history drops, and along with it, your score. For cards you’ve had a long time, aim to keep them open, so you’re using their impact towards your score.
For this reason, one of the only times you should consider closing a credit card is if the account carries hefty annual fees. You can open a new card with better terms, take the temporary hit to your credit, and focus on better pathways forward.
How Many Credit Cards Should You Have For Good Credit?
The answer to how many cards you need to maintain good credit will depend on factors like how long you’ve had them and how high your credit limits are. You also may prefer to have certain cards for certain reasons, such as an American Express with cash-back rewards and a Mastercard that you can use where AmEx isn’t accepted.
That being said, if you’re on the fence about how many cards you need, more can be better so long as you can manage them responsibly. My four cards suit me far better than just one would, and they make both my life and my credit score better. My friend’s 11 cards, on the other hand, may help her keep her score down for now, but if her balance continues to grow out of control, they won’t be any help in the long run.
If you’d like to open a new card to help boost your credit utilization, it’s a good idea to opt for a store card from somewhere that you know you can shop in-store and online for a range of products. For example, choosing BestBuy over a mall-based store three counties over will help you use the card periodically, and you’ll build your credit.
When it comes down to it, the answer to how many credit cards should you have for good credit is simple: however many you need to keep your finances in order and your balances down. It is ultimately healthy money management like paying your bills on time and saving money to relieve other debts that will contribute to a good credit score.