Load your computer, switch on your television or open the mail, and it won’t be long before you find an advertisement for a fantastic new deal and low rates on a credit card. However, before taking out multiple cards, it’s worth carefully considering the potential ramifications. It’s possible you haven’t yet thought to yourself, “How many credit cards should I have?” It’s easy to focus primarily on the convenience, but taking out multiple cards and moving your debt around rather than paying it down can damage your credit score.
How Many Credit Cards Should You Have?
If you haven’t had a credit card before, it’s a wise idea to start by taking out just one with a low credit limit. With a single card, there’s less worry thanks to a single monthly payment, and it’s easier to stay in control of your spending. If you eventually decide you want to take out additional cards, you can take advantage of various benefits such as spreading your balances to avoid maxing out credit limits, moving your balance to get a lower rate on a new card, or getting new account bonuses such as cash back on spending.
Taking out new credit cards does come with potential risks to keep in mind. The most obvious danger is that you can start to rely on the additional lines of credit to fund your lifestyle, gradually increasing your debt and making it more difficult to rein in your spending. Additionally, some cards have associated annual fees tied to their benefits. If you’re paying for those benefits and you aren’t using or accruing them, it’s likely time to close some of your credit accounts.
How Many Credit Cards Should You Have for Good Credit?
Every credit card you own and every credit card you apply for affects your credit score. The most commonly used credit score is the Fair Isaac Corporation FICO score system, which translates your credit history into a three-digit number ranging from 300 to 850. Understanding the potential positive and negative implications of taking out new cards for your credit score helps you to make wise choices:
- Increasing credit history: A long, healthy credit history generally improves your FICO score. By taking out several cards and managing them responsibly, you show you’re a low credit risk.
- Improving debt to credit ratio: Your FICO score considers your amount owed as a ratio of debt to credit. Thus, owing $1,000 when you have $10,000 of available credit is less damaging to your score than owing $1,000 if your available credit is only $2,000, notes myFICO. Some people open new credit cards, increasing their available credit to improve the ratio. However, this plan can backfire, according to the Fair Isaac Corporation. Opening too many credit accounts indicates to a lender that you’re in a position where you’re likely to get into debt by running up bills you can’t pay. This has a potentially negative impact on your FICO score. It’s usually better to owe the same amount with fewer open accounts.
- Hard inquiries: Every time you apply for a new line of credit, the lender performs a “hard inquiry” into your credit history that’s then added to your credit report. Each inquiry remains on your report for two years, and having a large quantity of inquiries in a short period, especially if you only have a limited credit history, can lower your FICO score. People with six inquiries or more on their credit reports are eight times more likely to declare bankruptcy compared to people with no inquiries, according to the Fair Isaac Corporation.
There’s no simple answer to the question of how many credit cards you should have. The right number for you isn’t likely the right number for someone else. It all depends on your financial situation and credit requirements. Generally speaking, it’s better to only take out cards when you really need them and to ensure you settle your accounts on time no matter what while paying down debts to maintain a good debt-to-credit ratio. Not sure where your credit stands? You can view two of your credit scores for free on Credit.com.