Credit cards are great financial tools of convenience and security. They come in handy when you either don't have any cash on hand or don't want to carry cash when making purchases. They can also be quite useful when making large purchases such as a new TV or major appliance. They're especially convenient when you're traveling and can provide you with a number of travel-related protections such as zero liability fraud coverage, lost or stolen card replacement, and auto rental insurance—not to mention opportunities to earn rewards.
But can you have too many credit cards? Popular financial wisdom says having too much plastic under your name can hurt your credit score. This immediately begs the question: How many credit cards are "too many"?
- Having too many outstanding credit lines, even if not used, can hurt credit scores by making you look more potentially risky to lenders.
- Having multiple active accounts can make it more challenging to control spending and keep track of payment due dates. Credit utilization beyond 30% of cards' credit lines and late payments can significantly lower credit scores.
- Closing older accounts can lower your average age of credit and hurt your score.
- You can boost your score in some cases by opening new credit cards if the new credit lines lower your overall utilization ratio.
Factors to Consider
There are several different factors that can help you determine the number of credit cards that's right for you. Some people feel that a small number of cards—one to three—is quite sufficient, while others end up opening multiple cards over time by responding to new offer incentives that come their way in the mail or online. But in reality, the way you manage them and the circumstances under which you obtain them that matters more than how many credit cards you carry.
That said, it can make sense to keep a primary card to use for most spending and maybe one or two as a back up or for specialized purposes (like using for a particular spending category that is rewarded with bonus points or cash back with a certain card). It's also important to keep in mind that having too many open credit lines relative to your income, even if they aren't used, can make you look potentially risky to lenders and degrade your credit score.
How Your Credit Score Is Determined
Before we look at the basics of credit card ownership, it's important to understand how your credit score is calculated. This can help you determine whether you carry too many credit cards or the few that you have are enough. Here's a quick review of the key components of your credit score vis-à-vis the amount of plastic you carry.
- Payment history: This is the biggest factor and counts for 35% of your credit score. Although this takes all your monthly payments from all your debt into account, your credit card payments are the biggest variable. Credit card companies are the least forgiving when payments are late and are quick to report to credit bureaus if they are tardy.
- Debt-to-credit ratio: Also referred to as credit utilization, this ratio measures the outstanding debt on your credit cards in relation to your available credit—basically, how close you are to the credit limits on all your cards. Your credit utilization factors into 30% of your credit score. The ratio hurts your score if it exceeds 30%.
- Length of credit history: This is where people with multiple credit cards can get into trouble. Building a responsible history of on-time payments improves your score over time. People with excellent credit scores have an average age of 11 years for all of their cards. This contributes to 15% of your overall score.
- New credit: Whenever you add a new credit account, it can cause your credit score to drop a few points—first when the creditor makes an inquiry on your credit report, then when the account is actually opened. New credit is 10% of your score.
- Credit mix: The type of credit you have counts for 10% of your score. Credit bureaus like to see how you manage debt across different types of credit accounts. Your credit portfolio ideally should consist of a mix of credit cards, retail accounts, installment loans, auto loans, or a mortgage.
Adding too many new cards when you have a short credit history reduces the average age of your credit accounts, which can drag down your credit score.
How Many Cards to Carry
The number of credit cards you have and how you use them can have a direct impact on your credit score. If you're a novice credit card user, focus on building a credit history with one or two cards and paying off your balance in full each month. Adding credit cards for specific purposes such as a good rewards program or for obtaining better travel-related benefits can also make sense, provided they are added gradually over time rather than all at once.
If you've used credit cards for several years, it may make sense to add a card if it has a significantly lower interest rate that could save you money if you plan on carrying new balances, assuming you feel you can qualify for better terms. You may also want to transfer a balance to a new card that offers a promotional 0% APR for new cardholders. However, you still need to focus on keeping your debt-to-credit ratio below 30%.
The average number of cards held by credit card owners, according to Gallup
Dealing With Too Many Cards
If you think you may have too many cards or have ones you no longer use, the worst thing you can do is start closing accounts without considering the impact on your credit score. Closing older credit cards can shorten your credit history, which can hurt your score.
Payment history on closed accounts eventually falls off your report, which can also hurt your score. Closing credit card accounts also reduces the amount of available credit, which can hurt your debt-to-credit ratio or credit utilization if you have outstanding balances.
It's better to leave your credit card accounts open and just put these cards on ice. If you get a warning about inactivity from the card issuer, use that card just a bit to prevent the account from being closed. You can also keep that credit card as a backup, especially if it comes with a higher interest rate or a higher credit limit. Keeping this one in the wings can help you keep costs down and, if it has a higher limit, can keep your spending in check.
Another option for an older, unused credit card you may have originally got when starting out, perhaps as a college student, is to call the issuer to trade to a better product rather than closing the account outright. That way you might up-cycle the card to one you find more useful while retaining your account history. You might have to forego any introductory bonus offers provided to new cardmembers but it's a better option than simply closing your old account and losing valuable credit history.
Getting Another Card
Credit card companies still solicit people to open accounts even though they've slowed down a bit. You know those mailings you often get that tell you you've been pre-approved for a card. Should you be tempted? Well, sometimes. The following are several potentially justifiable reasons to consider applying for an additional card:
- Getting a low-interest rate
- Transferring a balance—especially if able to take advantage of a promotional 0% APR offer
- Compelling introductory bonus and ongoing rewards
- Adding available credit to lower your debt-to-credit ratio
- Getting access to a higher credit limit if promised in the offer
The Bottom Line
Having a lot of credit cards can hurt your credit score under any of the following conditions:
- You are unable to service your current debt
- Your outstanding debt is more than 30% of your total available credit
- You have added too many cards in too short a time
- You lack diversity in your credit accounts (i.e., you don't have other types of credit in your name like a mortgage, auto loan, etc.)
But don’t simply start closing accounts just to reduce the number of cards you have. That can never help your credit score. Instead, pay off any outstanding balances and plan to at least hold on to the oldest card. Plan to keep it along with any other older unused cards in a safe place rather than in your wallet. Then just use it once a year or so to keep it active and investigate options for product-trading with your issuer.