When you dive into how credit scores work, you’ll come across a lot of conflicting advice. You’ll find out that an inquiry from a credit card issuer can temporarily ding your score, but you’ll also learn that having more available credit can boost your score. Both of those are true, so what gives? The reality is, the world of credit is complex — and the complicated factors that might affect your score depend on your situation.
Another question that’s difficult to answer is the number of credit cards you should have. Some people say there’s no such thing as too many, but other experts caution against overextending yourself.
How to Decide How Many Credit Cards Belong in Your Wallet
Once again, there’s no right answer for every person or every situation. The best number of credit cards for one person could be way too many — or too few — for someone else. Here are five tips that can help determine how many credit cards you should have.
1. Use the 10% Utilization Rule
Credit expert John Ulzheimer says there is a formula you can use to choose your ideal number of cards. Since the second most important factor that makes up your FICO credit score is credit utilization and the ideal utilization percentage is 10 percent or less, Ulzheimer says you should have as many credit cards as necessary so that your average monthly balance represents 10% of your total credit limit.
This depends on the typical amount of credit you access when your monthly credit card statements close — even if you wipe out your credit card balances each month, he says.
For example, let’s say your credit card statements normally close with $4,000 in balances in a given month. Applying the formula recommended by Ulzheimer, you’d want whatever number of credit cards it takes to reach a credit-limit threshold of $40,000 (4,000 is 10% of 40,000).
That might come in the form of two cards, each with a $20,000 line of credit, or six cards with credit limits that add up to $40,000. Any number of cards could be right for you, provided the math works out.
2. Pick a Card for Every Season
While Ulzheimer says using the formula above is the ideal way to determine how many cards you should have, he says some people believe you should diversify your cards among issuers and payment processors. With this strategy, you’d have at least one Visa, Mastercard, Discover, and American Express card so you cover all of the major payment processors. Ideally, you’d also have cards spread across card issuers like Chase and Citi.
If aiming to earn rewards, however, you might want to select cards that earn different types of rewards. Maybe you want a cashback credit card for regular purchases and a card that doles out more points for dining and travel. By having several cards with different earning tiers, you can strategically earn more rewards over time.
3. Gauge Your Ability to Stay Organized (and Stay Out of Debt)
Another factor to consider is how organized you are — and how quickly your finances might fall apart if you have several credit cards. Remember that each credit card represents one line of credit that you can access and one monthly bill.
Then there’s the problem of debt — one that far too many Americans face. The Street noted that average credit card debt worked out to $5,331 per person as of early 2019. Since the average credit card, APR is over 17%, it’s easy to see why credit card debt is a problem.
Juggling a number of cards might seem like a good idea, but it could become a problem if you struggle to track which ones you’ve used and how much you’ve charged on them. Sign up only for the number of cards you can reasonably handle.
4. Keep Track of Fees
Not only can several credit cards complicate the monitoring of your finances, but they also can rack up costs. That’s because many credit cards charge annual fees. So, you could have one card with an annual fee of $25, another with an annual fee of $99 and a third with an annual fee of $450. That adds up to $574 in annual fees or $2,870 over a five-year period.
Fees can be a particular problem when you’re pursuing travel rewards since the top travel credit cards typically come with annual fees of $450 or more.
5. Keep Old Accounts Open
Finally, keep in mind that it’s a good idea to keep old credit card accounts open — even if you don’t use them. The available credit on old cards can help keep your utilization rate under 10%, as Ulzheimer suggests. Meanwhile, older credit card accounts increase the average age of your credit history — a factor that makes up 15% of a FICO credit score.
The ideal number of cards is different for everyone, but it’s an important consideration. Don’t forget, though, that the types of cards you keep in your wallet matter, too.