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How Many Credit Cards Is Too Many?

The average person has 4 credit cards. Some of you probably loathe the idea of stuffing that many cards into your wallet, while others of you can’t believe the average is that low. Regardless of your preferred number of credit cards, there are upsides and pitfalls to having multiple cards. Here’s when you should apply for more cards, and when you shouldn’t because you have too many.

When You Should Apply for More Credit Cards

Improve Your Credit Score

Your credit score is used to assess your creditworthiness when you apply for more credit, like a loan or a credit card. The higher your credit score, the lower the interest rate you’re offered, so before applying for credit it’s important to get your credit score as high as possible. To do that, you can work on improving these 5 factors that are used to calculate your total credit score

  • Payment history (35%) – your ability to pay your minimum balance on time every month
  • Credit utilization (30%) – the amount of your available credit you’ve used
  • Length of history (15%) – how long you’ve been using your oldest credit card
  • New credit pulls (10%) – how often you apply for new lines of credit
  • Credit mix (10%) – your mix of revolving credit (like credit cards) vs installment credit (loans)

Where opening a new credit card can help is with your credit utilization, which is the amount of credit you’ve used vs the limit you’re offered. The lower your utilization, the better. Someone who has a $2,000 limit and maxes out their credit card every month would have a utilization rate of 100%. In this scenario, they could greatly improve their credit utilization by applying for another credit card and increasing the amount of credit they’re offered. If they got a second card with a $2,000 balance and still only spent $2,000 each month, their credit utilization would improve to 50%, which would improve their overall credit score.

While adding a card will improve your credit utilization, it will also require a new credit pull, which is a negative for your credit score. Since your credit utilization is factored into your overall credit score three times as much as your pulls, it is usually worth it to take a small dip in your score for a pull to get a larger gain from better credit utilization. However, if you’ll be having your credit score pulled for other reasons soon, like because you’re applying for a mortgage, for example, you may want to hold off on adding even more pulls. To avoid a new credit pull and still improve your credit utilization, contact your existing credit card company and ask for an increase on your limit. 

Take Advantage of Perks

When it comes to taking advantage of perks, you can never have too many credit cards. Some cards offer great sign-on bonuses, others offer travel rewards, and some give you cashback. To get the most out of your spending, you’ll need to sign up for multiple credit cards.

If you’re looking for an influx of points to help offset the cost of an upcoming trip, go for a card that has a big sign-up bonus. To qualify for these bonuses you usually need to spend a certain amount of money within the first few months, so make sure you can meet the spending minimum within the allotted time frame before you sign up.

Adding another credit card can also allow you to take advantage of the best perks on multiple cards. Let’s say you love to travel, so you have one credit card that gives you the best rewards for flights and hotels, and offers no foreign exchange fees. Then you also have a credit card that gives you a higher cashback percentage in other high spend categories for you, like groceries and transportation. Having multiple credit cards that give you the best rewards in all of your high spend categories gives you the biggest bang for your buck.

When You Shouldn’t Apply for More Credit Cards

You’re In Credit Card Debt

While adding a new card to your arsenal can be extremely beneficial, it can also be a bad idea if you’re already in credit card debt. The only way to reap the benefits of your credit card rewards is if you fully pay off your credit card every month. If you aren’t doing that, you should focus on paying off your balance before adding another card to the mix. Credit card companies charge astronomical interest rates on the balances you carry, so the cost of carrying a balance will far outweigh the rewards. The worst thing you can do in this situation is to get another credit card and run up even more credit card debt.

It Stresses You Out

Another reason to avoid getting a new credit card is that you’re happy with your credit score and don’t want to overcomplicate things. Having multiple credit cards so you can take advantage of the rewards each offers is great, but it also means you have to keep track of which card to use on which purchases. Some people love finding deals and have a credit card for each spending category. Other people can’t stand the thought of keeping track of which card to use for what. If that’s you, there’s no point in adding a card if you’re never going to use it.

While 4 is the average number of credit cards someone has, it isn’t the ideal amount for everyone. For some people, having more than 4 cards is better, and for others, 4 is way too many. In general, adding a credit card can help your credit score but should be avoided if you’re in debt, and you can increase your rewards with more cards but it also complicates your spending. To figure out if you have too many credit cards, ask yourself these questions.

  1. Am I in credit card debt?
  2. Is having multiple credit cards stressing me out?

If the answer to either of these questions is yes, you have too many credit cards.

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