Credit cards are excellent financial convenience and security tools. They’re helpful when you don’t have any cash on hand or want to make some money with you while shopping. They may also come in handy when purchasing oversized items such as a new television or significant appliance.
They’re instrumental when traveling, as they can provide you with a variety of travel-related benefits like zero liability fraud coverage, card replacement in the event of loss or theft, and auto rental insurance, as well as opportunities to earn rewards.
But is it possible to have too many credit cards? According to traditional financial knowledge, carrying too much credit card debt may harm your credit score. Does this raise the issue of how many credit cards are “too many”?
Consider the following factors:
Many variables may help you figure out how many credit cards are appropriate for you. For example, some individuals believe that a modest number of cards—one to three—is enough, while others open numerous cards throughout time due to fresh offer incentives they get in the mail or online. However, how you manage them and the circumstances under which you obtain them are more important than the number of credit cards you have.
However, it may make sense to maintain one major card for most expenditures and one or two secondary cards as backups or for specific uses (like using a particular spending category that is rewarded with bonus points or cashback with a particular card). It’s also worth remembering that having too many open credit lines about your income, even if they’re not being utilized, may make you seem riskier to lenders and lower your credit score.
How Is Your Credit Score Calculated?
It’s crucial to understand how your credit score is determined before getting into the nitty-gritty of credit card use. This may help you figure out whether you have too many credit cards or if the ones you have are sufficient. So here’s a brief rundown of the main components of your credit score about your credit card use.
Payment history: This is the essential element, accounting for 35% of your credit score. Although all your monthly payments from your debts are included, your credit card payments are the most important. Unfortunately, credit card issuers are the least tolerant of late fees, and they are fast to record late payments to credit agencies.
Debt-to-credit ratio: Credit utilization compares the amount of debt you owe on your credit cards to the amount of credit you have available how close you are to max out your credit cards. Your credit usage accounts for 30% of your overall credit score. If the ratio reaches 30%, it will lower your score.
Credit history: This is where people who have many credit cards can get themselves into trouble. Over time, establishing a responsible account of on-time payments improves your credit score. For all of their cards, those with excellent credit ratings have an average age of 11 years. This factor accounts for 15% of your total score.
New credit: Adding a new credit account may lower your credit score by a few points, first when the creditor conducts a credit inquiry on your report and then when the account is established. New credit accounts for 10% of your total score.
Credit mix: Your credit mix accounts for 10% of your overall score. Credit bureaus are interested in seeing how you manage debt across a variety of credit cards. retail accounts, installment loans, auto loans, and mortgages should be part of your credit portfolio.
How Many Cards Should You Carry?
Your credit score is directly influenced by the number of credit cards you have and how you use them. Focus on establishing a credit history with one or two cards and paying off your amount in full each month if you’re a new credit card user. Adding credit cards for particular reasons, such as a robust rewards program or improved travel-related perks, may be beneficial if done gradually over time rather than all at once.
If you’ve been using credit cards for a while, adding another card with a lower interest rate may save you money if you intend on carrying new balances, provided you qualify for better conditions. You may also consider transferring a debt to a new card with a 0% introductory APR for new cardholders. However, you must maintain a debt-to-credit ratio of less than 30 percent.
Dealing With An Excessive Number of Cards
If you believe you have too many credit cards or ones you don’t use, the worst thing you can do is close accounts without thinking about the consequences to your credit score. Closing older credit cards may result in shorter credit history, negatively impacting your credit score.
Payment data from canceled accounts ultimately disappears from your credit record, lowering your score. In addition, if you have outstanding amounts on your credit cards, closing them reduces the amount of accessible credit, which may affect your debt-to-credit ratio or credit utilization.
It is preferable to keep your credit card accounts active and just put these cards on hold. If the card issuer sends you a notice about inactivity. Use the card for a short period to keep the account from being canceled. That credit card may also be marked as a backup. Particularly if it has a higher interest rate or credit limit. Keeping this one in the back of your mind may help you cut expenses and keep your spending under control if it has a larger limit.
Calling the issuer to swap to a better product rather than canceling the account altogether is another option for an older, unused credit card you may have received when you first started, say as a college student. You may then replace the card with one that you find more handy while keeping your account history. You may have to forgo any new cardmember initial bonus offers, but it’s a better choice than canceling your old account and losing important credit history.
Obtaining a Second Card
Even if they’ve eased down a little, credit card firms continue to recruit consumers to establish accounts. You’ve probably receiving one of those letters informing you that you’ve been pre-approved for a credit card. Should you succumb to the temptation? Sometimes, at least. Several possibly acceptable reasons to consider applying for an extra card are as follows:
- Obtaining a low-interest loan
- Transferring a balance—especially if a promotional offer is available—is a good idea. 0% APR for a limited time
- An enticing welcome bonus as well as continuing benefits
- Increasing your available credit may help you reduce your debt-to-credit ratio.
- Obtaining a higher credit limit if it was promise in the deal
The bottom line
If you have several credit cards, it may affect your credit score in the following ways:
- First, you’re unable to make payments on your existing debt.
- Your entire available credit is less than 30% of your outstanding debt.
- Second, you’ve added far too many cards in a short period.
- Third, you don’t have enough credit variety (i.e., you don’t have a mortgage, car loan. Or other kinds of credit in your name).
But don’t just start canceling accounts to cut down on the number of credit cards you have. That is never going to improve your credit score. Instead, pay down any outstanding amounts and intend to keep the oldest card at the very least. Then, instead of keeping it in your wallet, store it, along with any other older unused Cards cards. In a secure location. Then, every year or so, utilize it to keep it active and look into product-trading possibilities with your issuer.