How Many Credit Cards Are Too Many?
Are you about to make a big purchase? Is there a particular store at which you spend most of your time and money? Are you trying to boost your credit score?
If you answered yes to any of these questions, you've likely considered applying for another credit card. And it could be a smart financial move—if you do it correctly.
Finding the right balance of credit cards for your unique situation is important. Hitting that perfect ratio can help you achieve a higher credit score and earn valuable rewards. Exceeding your available credit limits, however, can raise flags for some lenders.
You want to keep your wallet stacked in your favor, so let's go over the age-old question: How many credit cards are too many?
Spoiler alert: There is no magic number. If there was, we'd be shouting it from the rooftops! There are, however, some helpful tips to choose the right number for you. Consider these options as you make your choice.
When to open a credit card
There are a few instances in which you may want to open a credit card.
If you don’t have a credit card—Those who don't have a credit card should consider opening one immediately. Start with a small and manageable credit limit on a low-rate card with minimal fees.
“A credit card is a great way to protect your financial information, earn rewards and make purchases on your own timeline,” says Jade Beckman, vice president of consumer loans at Mountain America Credit Union. “Responsible use of a credit card can boost your credit score and truly be an essential aspect to achieving your financial goals.”
If you want to diversify your benefits—For those who already use one, two or three cards, and are considering adding another to the bunch, look at the benefits you currently earn. If one card gives you cash back and another gives you a discount at your favorite store, consider opening an airline rewards card to help you travel more comfortably and affordably.
If you want to track certain expenses—Or, maybe it’s easier to stay on top of your finances if you segment your credit cards. Some people like to put groceries on one card and gas on another. This can be very helpful for tracking budget categories or managing work expenses—just make sure to keep track of when each payment is due!
If you choose to apply for a new credit card, keep an eye on your credit reports. Applying for a new account can impact your credit score modestly, but it shouldn't be a significant drop. Responsible spending and payment habits will bring your score back up in a reasonable amount of time.
When to lay low
Opening a new credit card isn't always the right choice. The smartest way to approach your credit card arsenal is to give yourself a decent amount of credit, but not so much that you lose control.
If you’re likely to lose count—Basically, you shouldn’t get so many credit cards that you lose count or are tempted to exceed what is manageable for your budget. When you do this, you can either forget to or be unable to pay off balances. That’s when your credit score may suffer.
If you've just paid down debt—A new credit card may boost your credit score temporarily, but that won't last without a consistent payoff plan in place. Take a few months to work out a system to pay off all your balances in full and on time, then consider opening a new card, when you’re ready.
If you’re new to the world of credit—Our best recommendation is to start slow. If you just opened your first credit card, take some time to learn about your lender and the intricacies of making payments. You'll have plenty of time to open more cards later.
When to close a credit card
Speaking of later, you may get the urge to close a credit card one day. Whether it’s because you don’t use the credit card, it’s got too high of an interest rate or you have others you use more, here are some strategies to consider if this is the right move.
If you don’t use the card—You've probably heard somewhere that closing a credit card can negatively impact your credit score. This is because closing a credit card reduces your line of available credit and, if you carry a balance, increases your credit utilization ratio (the ratio between the amount of credit you have used and your total credit limit). This ratio is one of the more influential factors in your credit score. If you're planning on applying for any type of loan or credit line in the near future, for example, it's best to preserve your credit score and not close the card right now.
If the card has a high interest rate—You may have made a hasty decision on your first card or opened a card with a high interest rate or too many fees. Some factors to consider before closing the account are the age and credit limit on the card. An older card may actually be boosting your credit score. One option is to only use the card for occasional purchases while paying off the balance right away. You can also contact the company to see if they will give you a lower rate.
If you're attempting to pay off debt—If your top financial goal is to get out of debt, you may find that having access to multiple credit cards is sabotaging your goal. If this is the case, take the temporary hit and close the card.
See? We weren't kidding when we said there's no perfect answer to the question, how many are too many credit cards?
Everyone's financial situation is a little different. For one person, one credit card is enough. For another person, three or four could be the right number.
If at any point you're unsure whether to open a credit card, close one or hold off for a bit, reach out to your preferred financial institution. A team of trained experts can talk you through the options and help you decide your next money move.
