Should you have more than one credit card? If you've ever spent your way into a massive pile of credit card debt, the answer might be "no!" But for everyone else, the answer probably doesn't come as easily, as there can be advantages to having more than one credit card.
According to the American Bankers Association, there were 377 million open credit card accounts in the U.S. in 2020, and other reports found almost two in three Americans owns at least one credit card.
There are pros and cons to owning multiple credit cards, but most people can agree that having multiple credit cards can either help or hinder your credit score, depending on how well you manage them.
How Many Credit Cards Should You Have?
Is it Good to Have Multiple Credit Cards?
The effect on your credit score is probably one of your major concerns about having multiple credit cards. That is a common concern, but having more than one credit card can actually help your credit score by making it easier to keep your debt utilization ratio low.
For example, 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 impair your credit score. 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 credit scoring system works.
Is it bad to have multiple credit cards? No, if you handle your credit wisely, keep your credit line utilization ratio below 30%, and keep track of payment due dates.
To improve your credit score, most credit experts recommend that you should avoid using more than 30% of your available credit per card at any given time. By spreading your $1,800 in purchases across several cards, it becomes much easier to keep your credit 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. Only your payment history is weighted more heavily (at 35%) in determining 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.)
- Two thirds of Americans carries at least one a credit card, according to the Federal Reserve Bank of Boston.
- Having more than one credit card may help you keep your credit line utilization ratio per card lower than the recommended 30% by spreading charges.
- There are potential benefits to having multiple cards such as pairing various types of rewards cards to optimize earnings on all categories of spending.
How Many Credit Cards Should You Have?
There is no magic number to that question because everyone's situation is different. A strong argument can be made for having at least one credit card to take advantage of the inherent convenience, security and its other benefits. Justifying having more than one credit card can depend on whether you need the extra credit lines to accommodate your monthly discretionary budget or if you seek to leverage your everyday spending to earn various types of rewards like cash back, points or airline miles.
How Many Credit Cards is Too Many?
Even having two credit cards can be one too many if you can't afford to pay your bills, you don't need it or don't plan to use it for some purpose. While getting a new credit card can sometimes improve your credit score by potentially lowering your total credit line utilization, getting a lot of cards in a short period of time is not advised. Many card issuers even have rules in place to combat this phenomenon that has arisen with customers who try to game the system by signing up for lots of credit cards to earn the bonuses and then cancel after meeting the spending requirements. For example, Chase has a policy termed 5/24, which doesn't allow you to be approved if you have applied for more than 5 credit cards (regardless of issuer) in the past 24 months. Another potential downside of having a large number of cards is that it can make you look risky to lenders and lower your credit score. Even if you have them all paid off the mere fact that you have a lot of open and available credit lines can make you look like a potential liability to the next lender. So, while there is no absolute number that is considered too many, it's best to only apply for and carry only those cards that you need and can justify using based on your credit scores, ability to pay balances and rewards aspirations.
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 it Cash Back 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, restaurants, and gas (subject to a cap of $1,500 in combined spending per quarter). You might have another card that always gives you 2% back on gas—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 primary card 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 oversight will quickly ruin any savings you might have earned
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 Bermuda 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 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 a single credit card, make sure that you're always prepared with a backup payment method, whether cash or a debit card. (These cards offer convenience and security, but are they worth it? For more, see Prepaid "Credit" Cards: Convenience At A Cost.)
Should You Carry Credit Card for Emergencies?
It would be best if you didn't have to use a credit card for an emergency—and you'd have enough money in a liquid account like a savings account to use in such a situation. Being on vacation and not having money to cover a car repair or covering some other type of unexpected expense while away from home can be an example of where a credit card can come to the rescue. Other situations like an unexpected medical bill or losing your job can often drain any emergency savings and having at least two or three credit cards can be a useful thing in times of crisis (the present Covid-19 pandemic being a good example). Ideally, these cards should have no annual fee, a relatively high credit limit, and a low-interest rate.
The Bottom Line
There are many benefits to having multiple credit cards, but only if you manage them responsibly. 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 account, and especially your payment due dates.
Use each card to your best advantage, make sure to keep your balances low, and, if possible, always pay your balances in full on or before the due dates. (For related reading, see Should You Close Your Credit Card?)