More than just monitoring your credit reports on a regular basis is required to establish and maintain a healthy credit score. Having the appropriate mix of credit accounts, particularly revolving accounts like credit cards, is also important.
However, determining how many credit cards you should have requires rigorous calculation and is not frequently covered in conventional credit card advice. Combining that with the reality that each person’s financial condition is different makes finding the answer more difficult than you might think.
Fortunately, there are a few broad principles that might help you get started. Today is Get Smart About Credit Day, so we’re going to speak about strategy. What you should know if you’re wondering, “How many credit cards should I have?”
Which number of cards is ideal?
Technically, you don’t need to hold a certain amount of credit cards to improve your credit score. Some individuals thrive with just one. Others might favor three or four, especially if they provide various advantages like cash back, free credit monitoring, or travel rewards.
The ideal quantity is typically determined by your ability to handle it. Even if you’ve used the maximum amount on each card, you want to be sure that the total amount of your payments is something you can manage. One card is your best option if you find it difficult to make payments on two cards at once. If you can manage more than that, limiting yourself to two or three will help you from getting too overwhelmed while keeping track of your bills.
Is Having Multiple Credit Cards a Good Idea?
Multiple credit cards are neither necessarily good nor harmful to have. Instead, the focus should be on what you can handle. The effect on your credit is another important consideration.
Lenders favor borrowers who can safely employ a variety of credit products, in general. This often entails a track record of responsible managing of both revolving and non-revolving credit. You might be considered a more desirable borrower if, for instance, you have a history of consistently making your credit card and loan payments on time. Additionally, many credit cards may offer special benefits. You can access a variety of programs by having more than one, and these programs may collectively take care of a greater range of your financial needs.
If you struggle with managing your debt, it’s not a good idea to have many cards. You have more to juggle when you have multiple accounts. Due to the additional cards you may be able to max out, these management issues could increase your risk of missing payments or lead you to overspend to a greater extent.
How Having Several Credit Cards Can Affect Your Credit
Having various credit cards has several effects on your credit score. It influences your overall creditworthiness as well.
First off, obtaining a second or third card offers you access to extra credit, which raises your credit limit and improves your score. But occasionally, that works against you. Lenders consider your present borrowing capacity while determining whether to grant you further credit. Even if you don’t utilize your entire credit limit, you have the option to, and lenders might take that into account if it might affect your capacity to repay them even if you used up all of your other credit options.
Your credit utilization ratio is also impacted by having several credit cards. This amount totals all of your available credit lines and compares it to the outstanding balances on them. Your FICO score may be 30% affected by it, with lower utilization rates resulting in higher scores and higher utilization rates resulting in lower scores. If you’re an accountable borrower, getting a new credit card can help you lower your utilization and raise your credit score. However, if you use the new card to its maximum, your utilization increases and could lower your score.
A hard draw of your credit record usually occurs when you open a new credit card. While one or two forceful pulls normally don’t affect your score, more than that can.
Opening a new credit card also lowers the average age of your accounts. Long-standing relationships between borrowers and their creditors are preferred by lenders. That typically signifies they at least comply with the card’s terms and conditions. Lenders can be hesitant to provide you more credit if your average declines unless you can demonstrate that you can appropriately use your most recent additions.
The Effects of Credit Card Use and Spending Habits
You should consider your spending patterns and credit card usage while considering whether or not to apply for another credit card. While opening a new credit card may initially boost your score, especially if your utilization rate was high before the addition, it might cause problems if you start carrying a sizable load on the new card as well.
Credit cards can occasionally be a source of temptation. It’s recommended to avoid getting new credit cards if you’ve previously struggled to keep a low debt that you can manage. That enables you to stay away from a possible trigger for excessive spending while you establish new behaviors.
Additionally, managing the payments becomes more difficult when you are managing the balances on multiple credit cards. You might create many balances with large monthly payments in addition to adding new due dates that you’ll need to keep track of. This can make missing a deadline simpler, which is another thing that can hurt your grade. In addition, if the payments become exorbitant, you run the danger of going over your budget or skipping a payment because you lack the money.
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There is such a thing as having too many credit cards. Once more, there is no specific number. Instead, “having too many” refers to obtaining so many cards that you are unable to adequately handle them or that they hinder you from obtaining additional credit because lenders deem your high credit limits to be too hazardous.
Don’t get another credit card if you’re worried about managing a new one or trying to pay off debts you already have. Similarly, it’s recommended to avoid getting more cards if your overall credit lines would become dubiously large.
In the end, keeping no more than two or three is typically advisable because the typical borrower can manage that number. However, it’s also acceptable if you only feel comfortable with one. The most crucial element of the equation is, ultimately, effective management.
