How Many Credit Cards is Too Many?

Having a credit card can be a wonderful thing -- if you know how to use it. Buying something now and paying for it later is a great concept if you make sure to pay the bill on time. Once you have one credit card, you may consider adding multiple to your wallet. Various retail brands offer their own cards, and we’re sure your mailbox is full of card advertisements touting lucrative reward programs. There is no right number of cards anyone should have -- it all depends on your ability to pay back your bills, the rewards you’re looking for, and your credit score, among other factors. We’ll break down what you should consider if you’d like to open more than one credit card account.

Why would you have more than one credit card to begin with? 

There are many answers to this question, but a common reason is the rewards. Credit card companies entice customers to use their card versus another by offering rewards. These rewards vary from points used for cash back to travel miles to discounted groceries to exclusive events. You may have one credit card that offers 10% cashback on groceries this month, but another that gives you travel miles all the time. If you’re planning a trip, you may consider using the card doling out travel mileage. But you’ll use your other card when you buy groceries this month -- to ensure you get some money back in your pocket.

If you only have one credit card, you may not have a backup payment option if you lose that one card or it is stolen. Suspicions of fraudulent purchases, whether true or not, often lead credit card companies to temporarily block your card from making purchases. And you won’t know this until you are trying to pay a cashier. If you have more than one credit card, you’ll have another method of buying now and paying later while you sort out the issue.

The number of credit cards you have also impacts your debt utilization ratio -- or the percentage of your available credit that you use  -- which in turn affects your credit score. In fact, it’s one of the most important factors in determining your credit score. Even if you have one credit card that you pay off in full on the due date each month, you’ll have a high debt utilization -- which isn’t ideal. Typically, you’d want to keep your debt utilization below 30%, meaning you’re using less than 30% of your available credit. If you have multiple cards, and thus a higher overall credit line, you can spread purchases across various cards and lower your utilization.

Do I need multiple credit cards to keep my debt utilization low?

No! There are a few other strategies you can use to lower your debt utilization. For starters, you can pay all or part of a credit card bill before its due date. This affects what your credit card company will report to credit bureaus. The lower the balance you have on your card when your bill arrives, the lower the number that credit bureaus will see. If paying early is out of the question, consider restructuring your monthly budget and cutting down on unnecessary purchases paid for on your credit card. Also consider using other methods of payment, like a debit card or cash.

Based on your average monthly balance and how well you pay off your bill, your credit card company may be able to increase  your credit limit. They can do this automatically after a few months, but you can also ask them yourself and accelerate it happening. Having a higher credit limit, and not increasing your monthly credit card purchases, will lower your debt utilization as well.

Are credit cards the only way to get good rewards?

Absolutely not! Companies love rewarding their customers -- especially the loyal ones. If there is an online brand or brick-and-mortar retailer that you frequent, consider making an online account or asking about a loyalty program. As a bonus, ask whether purchases you have made in the past can be retroactively added to a new loyalty account. Brands frequently convert money you spend into points that can be redeemed for merchandise. It’s the high-tech version of a ice cream store's punch card used to redeem a free treat after a certain number of visits. 

Airlines, for example, offer numerous rewards that only certain travelers can use. Make a frequent flyer account for the one you fly with to collect the benefits from your purchases. You could earn free in-flight wifi, discounted snacks, and eventually, a free flight. 

What are the drawbacks to having multiple credit cards?

Rewards and low debt utilization are the main advantages to having more than one credit card, but there are also disadvantages. For one, you’ll have more bills to keep up with and pay on time. If you fall behind on paying one or more bills per your payment agreement, your credit score may be negatively impacted. 

Credit card companies also don’t like if you apply for too many cards within a short time frame. For example, signing up for five new cards from five different companies within a single year could show another company that you are fiscally irresponsible or trying to take advantage of credit card rewards. Neither is a good look for a new customer, or for credit bureaus.