Did you know that the average American carries around 4 credit cards at any given time? That stat may have you asking yourself if you have too few—or too many—credit cards, and wondering at what point the credit card pros outweigh the credit card cons and vice versa.
Personally, I have found a few credit cards that I absolutely love over the years and use for just about everything. But if you have spent much time exploring the wonderful world of personal finance content, then you won’t be surprised to hear that many financial experts disagree with me to some degree or another.
Some believe that credit cards only cause problems and go so far as to publish books with photos of them cutting up credit cards on the cover; while others praise credit cards for their convenience and benefits and seem to think that there is no downside to credit card use.
I fall somewhere in the middle: while I enjoy the perks that come with my credit cards, I also acknowledge that they have both advantages and disadvantages. But, I believe that when used responsibly, credit cards definitely have a place in a healthy relationship with money and can add numerous benefits to your personal finance journey.
Using a credit card responsibly
Let me redirect your attention back to a really important part of that last sentence: “when used responsibly.” Even credit card lovers like myself can acknowledge that a credit card can be a recipe for financial disaster when it is not used responsibly.
From racking up large balances to defaulting on payments to accruing interest on unpaid balances to reducing your credit score—irresponsible credit card use has the potential to do a whole lot of damage that can take years to undo.
So before we dive into just how many credit cards you should have, we need to get super clear on what it looks like to use a credit card responsibly.
- Pay off your credit card balance, in full, every single month. This will prevent you from racking up interest on your balance and keep your credit score from being negatively affected by your credit use.
- Only use a credit card for purchases that you have the cash to pay for. It is wise to have 3 to 6 months of essential living expenses saved in a high-yield savings account as your emergency fund so that you don’t have to reach for a credit card in the case of an emergency.
- Do not use more than 30% of your credit limit. This can negatively impact your credit score.
- Make sure to always make your payments on time. I suggest setting up automatic payments so that you never have to worry about missing a payment.
- Finally, avoid applying for new lines of credit too frequently. Creditors often perceive frequent credit inquiries as “risky” behavior and can damage your credit score.
So whether you have one credit card or 5, if you can commit to following these five guidelines, you should be able to utilize credit responsibly and enjoy the benefits of credit card use instead of the downsides.
How many credit cards should you have?
Want to know my favorite thing about personal finance? It’s that it’s exactly that—personal—and that applies to credit cards.
There is no perfect answer to the question “how many credit cards should you have?” as it will vary from person to person based on their financial situation, spending habits, and financial goals.
I personally recommend having at least one credit card so that you can use it to develop a healthy credit history and build a good credit score which will have a lifetime of benefits, including making it much easier to secure loans for things like cars, mortgages, and student loans in the future.
Additionally, having a credit card allows you to take advantage of cool credit card perks such as cash back, airline miles, and points that can be redeemed for purchases, travel rewards, and more.
Finally, one of the things I find most attractive about credit cards is that they are much more secure than debit cards and usually offer more protection in the case of card fraud.
In the case that your debit card is stolen, anyone with the card potentially has access to all of the funds in your account. Any charges that they make on the card will automatically be withdrawn from your account, and it can take weeks for your bank to reimburse you for the fraudulent activity—if you get reimbursement at all.
But if your credit card is stolen or fraudulent charges are made on the card, you can simply dispute the charges with your credit card provider and freeze the card. Sure, it may be inconvenient to have to wait for a new credit card, but you won’t lose any hard-earned money.
Should you have multiple credit cards?
While you don’t necessarily have to carry multiple credit cards, there are certainly advantages to having more than one credit card.
For instance, many credit cards allow their cardholders to earn perks and rewards on everyday spending, essentially giving them extra bang for their buck. But not all cards offer the same perks or the same rate of rewards. While one of your credit cards may offer you 5 times the points on travel expenses, another may offer you 5 times the points on gas and groceries. In this situation, having more than one card can give you more opportunities to earn and maximize credit card rewards.
Not only does having multiple credit cards allow you to earn perks across different areas of spending, but they also allow you to earn as many points as possible by spreading out your credit usage across multiple cards. This allows you to keep your credit utilization on each card under 30% so that it won’t negatively impact your credit score.
For example, let’s say you want to put $2,500 worth of charges on your credit card in order to earn points. You have one credit card with a $3,000 limit and another card with a $5,000 limit. If you charge the entire $2,500 amount to just one of the cards, you will exceed the 30% credit utilization guideline which will negatively impact your credit score.
So rather than charging the $2,500 to just one card, you could break the charge up across the two cards by putting a $900 charge on the card with the $3,000 limit and a $1,600 charge on the credit card with the $5,000 limit. This way, you will still earn the $2,500 worth of credit card perks but will not exceed the 30% credit utilization on either card and risk damaging your credit score.
Is it possible to have too many credit cards?
Once again, this answer can vary depending on the cardholder, as even one credit card can be considered too many for a cardholder who does not know how to use their credit card responsibly.
In short, there is no absolute number of credit cards that is considered “too many,” but there are definitely things to consider when applying for and carrying multiple credit cards.
One of the main concerns with having several credit cards is that having too many available lines of credit may look like a red flag to creditors and lenders. Not only can this impact your ability to get approved for things like car loans and mortgages, but it could also negatively affect your credit score as it can make you look like a potential borrowing risk.
Additionally, many premium credit cards require annual fees which can really add up if you have multiple credit cards.
As such, it is best to minimize the number of lines of credit that you open within a 24-month period, and only apply for the cards that you know you will be approved for that have annual fees that align with your personal budget and financial goals.