How Many Credit Cards Should You Have?

By Amy Fontinelle | June 27, 2011 AAA

If you've ever spent your way into a massive pile of credit card debt, the answer might be "none!" But for everyone else, the answer probably doesn't come as easily.

TUTORIAL: Types Of Credit Cards

According to the Federal Reserve Bank of Boston's 2009 Survey of Consumer Payment Choice (published April 7, 2011), 72.2% of consumers have a credit card. The average consumer who uses payment cards (a category that includes credit cards, debit cards and prepaid cards) has an average of 3.7 credit cards. Let's examine why you might want your own behavior to match these statistics, if it doesn't already.

Multiple Credit Cards and Your Credit Score
Your credit score is probably of your major concerns about having multiple credit cards.

Having more than one credit card can actually help your credit score by making it easier to keep your debt utilization ratio low. If you have one credit card with a $2,000 credit limit and you charge an average of $1,800 a month to your card, your debt utilization ratio, or the amount of your available credit that you use, is 90%.

Where credit scores are concerned, a high debt utilization ratio will hurt you. It may not seem fair - if you just have one card and you pay it off in full and on time every month, why should you be penalized for using most of your credit limit? - but that's how the system works. To improve your credit score, you should avoid using more than 10-30% of your available credit per card at any given time, according to credit score expert Liz Pulliam Weston.

By spreading your $1,800 in purchases across several cards, it becomes much easier to keep your debt utilization ratio low. This ratio is just one of the factors that the FICO credit scoring model takes into account in the "amounts owed" component of your score, but this component makes up 30% of your credit score.

FICO cautions that opening accounts that you don't need just to increase your total available credit can backfire and lower your score. (Paying these rates can impact your disposable income and investment returns. For more, see Understanding Credit Card Interest.)

Different Cards, Different Benefits
Having an array of credit cards can allow you to earn the maximum available rewards on every purchase you make with a credit card.

For example, you might have a Discover card to take advantage of its rotating 5% cash back categories so that in certain months, you can earn 5% back on purchases such as groceries, hotels, plane tickets, home improvements and gas. You might have another card that gives you 2% back on gas month in and month out; use this card during the nine months of the year when Discover isn't paying 5% cash back on gas. Finally, you might have a card that offers a flat 1% back on all purchases. This card is your default for any purchase where a higher reward isn't available. For example, you might be able to earn 5% on all clothing purchases in October, November and December with your Discover card; the rest of the year, when no special bonus was available, you would use the 1% cash back card.

Of course, you don't want to go overboard - if you have too many accounts, it's easy to forget a bill payment or even lose a card. The problems that can result from such an oversight will quickly ruin any savings you might have earned. (A decade before Mastercard or Visa existed, the first credit card company was introduced. For more, see How Credit Cards Built A Plastic Empire.)

Backup
Sometimes a credit card company will freeze or cancel your card out of the blue if they detect potentially fraudulent activity or suspect that your account number might have been compromised. In a best-case scenario, you won't be able to use your card until you talk to the credit card company and confirm that you are, indeed, on vacation in China and your card has not been stolen. That's not a phone call you can make from the cash register, however, because you'll have to provide sensitive personal information to confirm your identity. You'll need another way to pay if you want to complete your purchase.

In a worst-case scenario, the company will issue you a new account number, and you'll be completely without that card for a few days until you receive your new card in the mail.

Another possibility is that you could lose a card or have one stolen. To prepare, you might want to have at least three cards: two that you carry with you and one that you store in a safe place at home. This way, you should always have at least one card that you can use.

Because of possibilities like these, it's a good idea to have at least two or three credit cards. If you only want to have one, make sure that you're always prepared with a backup payment method. (These cards offer convenience and security, but are they worth it? For more, see Prepaid "Credit" Cards: Convenience At A Cost.)

Emergency
It would be best if you didn't have to use a credit card for an emergency - ideally, you'd have enough money in a liquid account like a savings account to use in such a situation. However, if you don't have the savings or if you want to have the option to not drain your savings unexpectedly, you might want to have one credit card that you set aside only for emergencies. Ideally, this card would have no annual fee, a high credit limit and a low interest rate.

TUTORIAL: Credit Cards: Pros And Cons

The Bottom Line
There are many benefits to having multiple credit cards, but only if you manage them correctly. To ensure that having several credit card accounts will work for you, not against you, be aware of the benefits each card offers, your credit limit on each one and your payment due dates. Use each card to your best advantage, and make sure to keep your balances low and pay them off in full and on time. (For related reading, see Should You Close Your Credit Card?)

You May Also Like

Related Articles
  1. It's tough to get a credit card when you move to the U.S. with no Social Security number and no American credit history. Here's how to get started.
    Credit & Loans

    Top Credit Card Options For International ...

  2. Building back credit after bankruptcy generally starts with getting a secured credit card. Here's how to identify the best deals among the limited choices.
    Credit & Loans

    Which Credit Cards Are Best After Bankruptcy?

  3. Some credit cards offer particularly good deals for holiday shoppers.
    Credit & Loans

    The Best Credit Cards For Holiday Shopping

  4. How high a credit score do you need to get a home mortgage or buy a car? Read on for some actual numbers.
    Credit & Loans

    How High Is A 'Good' Credit Score?

  5. A high-interest card with no annual fee and some good rewards, the Walmart Credit Card is worth a look, especially if you regularly shop at Walmart.
    Credit & Loans

    Review: The Walmart Credit Card

Trading Center