These days, most people get their first credit card solicitation while they are in college or even still in high school, and it’s easy to amass several cards before you graduate from college (although the limits are likely to be low unless you have a full-time job while in college). Having credit cards that you use responsibly helps you build a positive credit history that will be looked at when you apply for certain jobs, buy a car, rent an apartment, or get a mortgage to buy your first home.
But, you may ask–how many credit cards should I have? Should I accept every offer that I get, apply for cards that have benefits I want, or stick to just one or two and let the other offers go? Or should I avoid credit cards altogether?
The Optimal Number of Credit Cards
A recent study showed that people with the highest FICO scores (over 785) had an average of seven credit cards in their name. An average means that some people with high credit scores have more and some have less than seven, but having seven cards could give you the best result in impacting your credit score if you use them the right way.
Money magazine reported that one man, Walter Cavanaugh, even has the world’s record of 1,497 credit cards in his name with total available credit of $1.7 million, but has nearly perfect credit because he uses them responsibly. Cavanaugh earned the nickname “Mr. Plastic Fantastic” for his feat, but it just goes to show that it is difficult to have too many credit cards.
In some cases, seven cards may not give the best result. While the number of cards you have is not directly looked at as part of the credit score calculation, another factor called credit utilization makes up about 30 percent of your total FICO score calculation, which is significant.
If you have balances on your credit cards that make up more than 30 percent of your available credit and you can’t pay them down below that level, it may be advantageous to open one or more new accounts to get your total utilization below 30 percent. In fact, having your utilization at around 10 to 15 percent is more in line with those with the highest credit scores, but 30 percent utilization or less will allow you to have a credit score in the “good” range.
How People With High Credit Scores Use Credit
How many credit cards should you have? You could have just two credit cards or 50 and still have good credit. You could use them once in a while, carry small balances on one or more of them, or use them for all your regular expenses and pay them off each month. These are all effective ways to use credit, and ones that will keep your credit score high (assuming you pay all your other bills on time).
Having an on-time payment history is 35 percent of your credit score, the highest single factor. Making payments on time is extremely important, and plays into the number of cards you have because it can be hard for some people to keep track of payment due dates. The more cards some have, the more likely they will be to pay one late, which will impact their credit score negatively. You only want to have as many cards as you can keep track of and effectively manage.
Besides paying on time and using 30 percent or less of your credit, a few other things can impact your credit score. The amount of new credit you have makes up about 10 percent, the types of credit you have (mortgage, installment loan, etc.) makes up another 10 percent, and the final 15 percent is the length of your credit history.
In other words, in addition to having the right number of cards, you also want to have at least one other type of credit, you don’t want too many brand new credit cards, and you also don’t want to close your older credit cards, even if you don’t use them much.
Do I Even Need Credit Cards?
Some financial experts advise their followers not to have credit cards at all. Borrowing money is bad, they say, and your chance of getting into a position where you can’t pay off the debt is too high. And sure, if you never, ever need to borrow money, you probably don’t need credit cards. But how many people can buy a car or a house with cash when they first enter the workforce? Not too many.
Credit cards are a good way to build your credit history, and it is, in fact, difficult to build one without them. It is true that many people get into trouble with credit cards when they carry a balance and then find they can’t pay it off (or even pay the minimum payment in some cases), and they end up hurting their credit score instead of helping it.
Getting even one credit card and charging one small purchase a month, then paying it off right away can make a huge difference in your credit score and can qualify you for the loans you will need to make the larger purchases you want to make later on, at lower interest rates than you could get if your credit score were lower. You could save thousands of dollars in interest on a car loan and tens of thousands on a mortgage by qualifying for a lower interest rate.
If you’re going to have multiple credit cards and use them regularly or carry balances, it’s essential to have a list of all your bills and their due dates so you can be organized about when the credit cards are due and make the payments on time (or early). Committing to using credit responsibly can help you get the benefits of having credit cards without the drawbacks.
If on the other hand, you have a history of paying bills late or forgetting to pay them, you may want to have fewer cards so it’s easy to keep track of what’s owed and when you need to make the payments. If you plan to apply for more credit cards, you will want to limit your applications to just one every six months or so and consider what kind of cards you want to have.
Many Americans have a mix of store cards and all-purpose cards (like Visa and Mastercard). If there’s a store where you tend to shop more than most others, you may want to get a credit card for that store. Conversely, if you think you may overuse the card, you might want to choose a store where you only shop occasionally to prevent that from happening.
For cards that can be used anywhere, getting a rewards card can allow you to earn cash or gift cards as you spend, even if you pay off the balance each month. Some cards give specific rewards for travel or airline miles, allowing you to earn free flights or hotel stays that can make travel less expensive. Knowing how you plan to use your rewards will help you decide what kind of card to get.
So back to the question: How many credit cards is too much?
While there’s not one specific number of credit cards that every person should get, you can use the guidelines here to figure out a number that will allow you to keep your total credit utilization under 30 percent and easily keep track of when payments are due. Using credit cards can be positive for your credit rating when they are used in a responsible way.