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How Many Credit Cards Should I Have?

  • By Jenna Gleespen
  • Jan 11, 2023
How Many Credit Cards Should I Have

Myths about good credit scores abound. Some say you must not have more than two credit cards, while others advise that at least four are necessary! So, you may wonder, how many credit cards should I have for a good score? If you want the best answer to this, read on.

How Many Credit Cards Should I Have?

Experts usually recommend having two or three credit cards at a time. But the number is not as important as how they are used.

A person can have even more than this if their credit history is strong and they can pay the dues on time. In fact, having multiple credit cards could have a positive effect on credit scores.

It reduces the credit utilization ratio (total debt/available credit), a factor that accounts for 30% of the report.

 

How Many Credit Cards Should I HaveHowever, there are some disadvantages to this as well.

Excessive spending due to readily available credit can harm the score and should be avoided. Moreover, keeping up with multiple payment schedules and charges can be exhausting.

On the whole, there are both pros and cons to having multiple credit cards. One should weigh them carefully before making a choice.

Is 4 Credit Cards Too Many?

Four credit card accounts can potentially be too many.

Each application causes a temporary credit score drop by (up to) five points due to a hard credit check. Also, managing four cards is a headache in itself.

Having many credit cards can be especially dangerous for people with bad scores. Keeping balances low, meeting payment schedules, and regularly checking credit reports are very cumbersome.

Hence it is best to avoid keeping so many credit accounts at once.

Is Having 2 Credit Cards Ok?

Two cards could be good for your credit report rather than just one. It increases the overall credit available and reduces the utilization ratio, which we mentioned previously.

How Many Credit Cards Should I Have

This can improve your credit scoreThe only caveat is that the total spending should not increase just because more credit has become available.

That can end up creating a big hole in the FICO report instead!

Does Having 3 Credit Cards Hurt Your Credit?

Having three cards may or may not hurt your credit.

It depends on what the current report is like. If it is good, and the payment history is strong, three cards should not be a problem. Having multiple cards but not holding a balance could have potential benefits.

It reduces the credit utilization rate and hence improves the overall score, as explained above.

But on the flip side, each card leads to a temporary drop in your score, and having so many cards might spoil your spending habits.

Overall, it is essential to continue to spend moderately even when available credit increases.

How Many Credit Cards Should I Have

 

What Is a 5/24 Rule?

5/24 is a rule used by Chase to reject card applications. It automatically discards them if the customer has acquired five or more cards in the last 24 months (hence the name).

Online reports suggest that Chase’s own and co-branded cards are subject to this rule.

Moreover, the cards can be of any type – business or personal. They could also be from any issuer (Citi, Amex, or any other bank). Acquiring several cards in quick succession is frowned upon by almost every credit card issuer.

They see it as a sign of taking on excess debt or mismanagement of funds. Chase has taken things one step further and implemented the law strictly on most of its cards.

What Is the 20/10 Rule for Credit Cards?

The 20/10 rule is a guideline on how much debt a household should carry (excluding housing loan payments). Under 10% of net monthly income is ideal, and 20% of yearly income should be the annual upper limit for debt servicing.

Net income here is the in-hand or take-home amount. It excludes all deductions and taxes.

How Many Credit Cards Should I Have

To illustrate, if the net monthly household income is $5,000 a month, the 20/10 rule says that monthly debt payments should be < $500 (10% of $5,000).

Secondly, $5,000 a month translates to an annual take-home of $60,000 ($5,000 x 12). $60,000 * 20% = $12,000. Hence annual payments should be < $12,000.

The idea behind the 20/10 rule is that debt-related expenditure should match the means of the household.

It is a visual marker that allows one to plan their total debt.

What Number Is Too Many Credit Cards?

There is no such thing as too many credit cards, as long as the holder’s credit history and ability to pay the dues can support it. That said, excess of anything is not good.

Each card causes a temporary drop in your score, and managing multiple cards is a big problem in itself.

A few card companies also disallow users with more than four or five cards in two years to take any more. Chase is an example of this, as we mentioned earlier.

On the flip side, credit bureaus suggest having at least five credit accounts to have a good credit score for a person. Note that this includes not just credit card debt. It can be a housing mortgage, auto loan, credit line, or any other form.

One should consider all current outstanding and then figure out the right number of cards for themselves.

Does Cancelling a Credit Card Hurt Your Credit?

Yes, canceling a credit card account could potentially hurt your FICO scoreThis is because it reduces total available credit, which increases credit utilization.

For example, let’s say you have three cards, each with a $1,000 credit limit and an average monthly payout of $300.

How Many Credit Cards Should I Have

Thus your utilization rate is 10% ($300/$1,000 3). If one of these cards is canceled, it increases to 16.6% ($300/$1,0002). This will hurt the credit score.

Remember that this factor impacts 30% of the overall number and therefore matters a lot.

However, there is a common misunderstanding that canceling a card impacts credit history (which accounts for another 35% of the number).

This is not true.

An account can stay on your report for nearly seven to ten years even after closure, depending on whether it was negative or positive respectively.

How to Get a Credit Score of 850?

A perfect credit score of 850 requires exemplary payment history, a potent mix of debt sources, low utilization scores, and continued sources of loans.

The last one is slightly counterintuitive, but we will get to it in a minute. Below are a few tips to get the perfect score.

Regular Bill Payment

Ensure those card dues are paid often and regularly. Some suggest even doing it weekly. Payment history accounts for 35% of the FICO report, which makes it the most significant parameter.

Enhance Credit Limit

Get multiple cards, not all at once, but over time. Secondly, ask the lender to enhance the credit limit at regular intervals.

This impacts nearly 30% of the score. Hence it is something to seek out actively.

Keep Your Credit Going

Don’t cancel your old cards unless you have to. The average age of accounts matters and affects nearly 15% of the score. This is why continuing old loans matters.

Even though closing out that housing mortgage might be a significant financial goal for you, it impacts the FICO score negatively.

Get a Good Mix of Credit

Ensure there is a healthy mix of types of credit (not the number of cards, but the mix). Use the right type of credit for the correct purpose – don’t use credit cards to pay for a car. Take out an auto loan.

A good mix is about 10% of the overall score, so it’s a slightly less critical factor.

Is It Good to Keep Credit Cards With No Balance?

Yes, keeping cards with no balance can positively affect credit scoring. Credit utilization rate is a key factor in credit scores.

It is decided individually for each card and for the overall portfolio you hold as well. As mentioned earlier, this is nothing but total debt to available credit.

A card with no balance adds to the denominator but not the numerator. Thus, it lowers this ratio, which benefits your report greatly.

Remember, though, that the card must remain active to get this benefit.  Doing this might require making small purchases from time to time.

Then remember to pay it off quickly. As long as that happens, keeping the card has a positive result.

Does Having 2 Credit Cards Increase Credit Score?

Taking a second card can increase credit scores because it lowers your utilization rate.

As mentioned earlier, credit utilization is inversely proportional to available credit. Adding a new card increases this number.

However, it will only work if the extra credit limit does not increase your spending. It would be best to continue using both cards but keep the overall spending at the same level as that with one card.

Final Thoughts

Experts suggest having two or three credit cards as the best option, but this depends from person to person.

We explained the math of adding a new card to your portfolio. It can help improve your score, but only if you don’t start a spending spree with it. In the final analysis, the number of credit cards does not matter much.

What’s more important is regular payments and keeping a low balance.  You can keep as many cards as you like as long as both are taken care of.

 

Related: How To Leverage Credit Cards to Build Wealth

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Jenna Gleespen is a published author and copywriter specializing in personal and investment finance. Her expertise is in financial product reviews and stock market education.