Credit cards are excellent financial instruments that provide ease and security. They are useful when you don’t have any cash on hand or prefer not to carry cash while making transactions. They may also come in handy when making huge purchases like a new TV or other appliance. They’re particularly useful while traveling, since they may give you with a variety of travel-related benefits such as zero liability fraud coverage, lost or stolen card replacement, and vehicle rental insurance, not to mention possibilities to collect points.
But is it possible to have too many credit cards? According to popular financial knowledge, carrying too much credit card debt might harm your credit score. This poses the question, “How many credit cards are “too many”?”
- Having too many outstanding credit lines, even if they are not utilized, may harm your credit score by making you seem more dangerous to lenders.
- Having many active accounts might make it more difficult to keep track of expenditure and payment due dates. Credit use over 30% of credit limits on cards, as well as late payments, may drastically reduce credit ratings. 1
- Closing older accounts might reduce your average credit age and lower your credit score. 2
- In certain circumstances, adding additional credit cards might help your score if the extra credit lines decrease your total usage percentage.
Factors to Consider
There are various elements that might help you select the number of credit cards that are appropriate for you. Some individuals believe that a limited number of cards—one to three—is enough, but others wind up opening several cards over time as a result of reacting to fresh offer incentives that arrive in the mail or online. However, how you handle them and the conditions under which you receive them are more important than how many credit cards you have.
However, it may make sense to have one principal card for most expenditures and one or two secondary cards for backup or specialty reasons (like using for a particular spending category that is rewarded with bonus points or cash back with a certain card).It’s also crucial to remember that having too many open credit lines in relation to your income, even if they’re not utilized, might make you seem potentially hazardous to lenders and lower your credit score.
How Your Credit Score Is Determined
Before delving into the fundamentals of credit card ownership, it’s critical to understand how your credit score is created. This might help you assess if you have too many credit cards or whether the ones you have are sufficient. Here’s a short rundown of the primary components of your credit score in relation to the quantity of cards you own.
- Payment history: This is the most important component, accounting for 35% of your credit score. Although this takes into consideration all of your monthly debt payments, your credit card payments are the most variable. Credit card issuers are the least lenient of late payments and are fast to report them to credit agencies. 3
- Debt-to-credit ratio: Also known as credit usage, this ratio compares your outstanding credit card debt to your available credit—basically, how near you are to the credit limitations on all of your cards. Credit usage accounts for 30% of your credit score. If the ratio surpasses 30%, your score suffers. 4
- Credit history length: This is where those who have many credit cards might get into problems. Building a track record of on-time payments boosts your credit score over time. All of the cards owned by people with great credit had an average age of 11 years. This accounts for 15% of your total score. 5
- New credit: Adding a new credit account may lower your credit score by a few points—first when the creditor makes a query on your credit record, then when the account is officially created. New credit accounts for 10% of your overall score. 6
- Credit mix: Your credit mix accounts for 10% of your overall score. Credit bureaus are interested in how you handle debt across various kinds of credit accounts. Your credit portfolio should ideally include credit cards, retail accounts, installment loans, vehicle loans, and a mortgage. 7
When you have a limited credit history, adding too many new cards decreases the average age of your credit accounts, which might lower your credit score. 5
How Many Cards to Carry
Your credit score is directly affected by the quantity of credit cards you have and how you use them. If you’re new to credit cards, concentrate on establishing a credit history with one or two cards and paying off your monthly debt in full. Adding credit cards for particular goals, such as a decent rewards program or improved travel-related advantages, might also make sense if done gradually rather than all at once.
If you’ve been using credit cards for a while, it could make sense to add a card with a much lower interest rate that might save you money if you intend on carrying new balances, presuming you believe you qualify for better conditions. You can also consider transferring a debt to a new card with a special 0% APR for new customers. You must, however, maintain a debt-to-credit ratio of less than 30%. 1
According to Gallup8, the average number of credit cards owned by credit card owners is eight.
Dealing With Too Many Cards
If you suspect that you have too many credit cards or that you no longer use them, the worst thing you can do is begin cancelling accounts without contemplating the effect on your credit score. Closing older credit cards might reduce your credit history, lowering your credit score. 2
Payment data on canceled accounts ultimately disappears from your report, which might lower your credit score. Closing credit card accounts also decreases available credit, which may negatively impact your debt-to-credit ratio or credit usage if you have outstanding amounts. 2
It is preferable to keep your credit card accounts active and only put these cards on hold. If you get a card issuer notice regarding inactivity, use that card briefly to keep the account from being cancelled. You may also maintain that credit card as a backup, particularly if it has a higher interest rate or credit limit. Keeping this one in reserve may help you save money and, if it has a larger limit, keep your spending in control.
Another alternative for an older, unused credit card you may have had when first starting out, like as a college student, is to contact the issuer and trade up to a better product rather than shutting the account entirely. You may then up-cycle the card to a more useful one while keeping your account history. You may have to reject any new cardmember initial bonus offers, but it’s a better alternative than just cancelling your old account and losing crucial credit history.
Getting Another Card
Credit card issuers continue to recruit customers to register accounts, despite a little slowdown. You know those letters that inform you you’ve been pre-approved for a credit card? Should you succumb to the temptation? Well, sometimes. Several possible legitimate reasons to consider applying for an extra card are as follows:
- Getting a low-interest rate
- Transferring a debt, particularly if a promotional 0% APR offer is available
- Exciting welcome bonus and continued perks
- Increasing available credit helps reduce your debt-to-credit ratio
- Obtaining a higher credit limit if offered in the offer
The Bottom Line
Having a large number of credit cards might harm your credit score if any of the following situations exist:
- You are unable to make payments on your present debt.
- Your outstanding debt exceeds 30% of your overall credit limit. 1
- You have added far too many cards in a short period of time.
- You lack credit account diversification (that is, you do not have other forms of credit in your name, such as a mortgage, vehicle loan, etc.). 7
However, don’t immediately start deleting accounts to lower the amount of cards you have. That will never improve your credit score. Pay down any outstanding bills and aim to keep at least the oldest card. Keep it in a secure location, along with any other older unused cards, rather than in your wallet. Then, every a year or so, utilize it to keep it alive and research product-trading alternatives with your issuer.
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