Almost 170 million people in America have at least one credit card, but how many credit cards should you have
Credit cards, when used properly, may help you establish credit and earn rewards. However, how you use one credit card is more important than the number of cards you have.
To begin with, using credit cards to make purchases you cannot afford will harm you in the long term, regardless of how many cards you have. The average credit card has an annual percentage rate (APR) of approximately 16%. That implies that if you merely paid the minimum amount due each month, a $1,000 purchase may wind up costing you more than $2,000 in total.
Responsible credit card use, on the other hand, can be a fantastic strategy to build your credit history. When you pay your credit card account on time each month, it shows up on your credit report, which raises your credit score. Furthermore, if you pay off your card in full, you will never pay interest. Many cards also provide rewards that can provide you with outsized value, as long as you don’t carry over amounts from month to month – otherwise, you’ll pay interest, which could negate the benefits.
Now that we’ve covered the fundamentals, let’s dig in and see how many credit cards you should truly have, and whether there is such a thing as having too many cards
Let us begin with the fundamentals: A few distinct elements contribute to your credit score. This comprises payment history (35%), the amount of debt you owe versus the credit you have available (30%), length of credit history (15%), new credit (10%), and credit mix (10%). The number of cards you have has no bearing on the formula at all.
It is worth remembering, however, that every time you apply for a new credit card, your credit score drops by 2 to 5 points. It is, however, a minor cost that is usually worthwhile if you obtain a credit card that meets your financial demands. It is also swiftly reabsorbed, as long as you do not use the new card to incur additional debt.
The truth is that there is no hard and fast rule about the number of credit cards you should hold. It all comes down to financial responsibility: paying your payments on time and in full whenever possible, and making good use of the benefits that come with your credit cards.
Having at least one credit card can help you improve your credit, which can then be used to get approved for things like a mortgage or a vehicle loan. Some credit cards may provide Cash Back or vacation benefits. If you believe in your ability to manage a budget, a credit card will be more beneficial than cash or a debit card.
In contrast, if you are not in a position to maintain the financial discipline that managing credit necessitates, a credit card is probably not for you — and we would suggest using a debit card (or cash) and creating a budget before applying for one.
Before applying for a credit card, especially one with incentives, think about what you intend to do with the credit or the benefits.
“Use it for the cashback, use it for the travel privileges that come with some credit cards, but make sure you have a purpose in mind,” says Marc Russell, proprietor of the personal-finance Instagram account Betterwallet.
If you’re having trouble keeping track of your credit cards or paying your bills, or if you’re unable to enjoy some of the cards’ features, it’s an indication that you have too many on your plate – whether it’s one or 10.
If you pay the cards’ payments in full each month and receive enough value out of their perks, there really isn’t an upper limit, especially for cards with annual fees. These advantages can range from airline charge credits to lounge access and more — all of which are helpful tools to have on hand when flying resumes. (As their issuers see that individuals are staying at home, several travel-focused cards are increasingly offering benefits that have nothing to do with travel.)
You also don’t have to keep a card whose reward structure no longer works for you, though we normally recommend downgrading expensive cards you no longer need rather than cancelling them, which might harm your credit score.
There is no specific number of credit cards that the average person should hold.
Having a credit card (or cards) is all about safely managing them — and thus your money. That is far more important than the number of cards you have.
“Personal finance is personal before it is financial,” says Talaat McNeely, co-founder of His and Her Money. “If you know you don’t have the discipline to pay off your credit cards, you can end up in a sticky situation.”