How many credit cards should I have?

Between cash back bonuses, travel offers and ultra-low introductory rates, the allure of a new credit card is a siren song few consumers can resist. But with a seemingly unending stream of offers, it’s important to understand how your use of credit affects your credit score – for good and bad – before you sign on the dotted line. 

Is there an ideal number of credit cards to have for a good credit score? Is more always better?

It all depends. So, when Samuel L. Jackson, Jennifer Gardner or the next Hollywood spokesperson pitches you during the big game this weekend, keep this advice in mind. 

Caution first

Before you consider applying for a new credit card, realize that the average indebted American household carries upwards of $16,000 in credit card debt. It’s a staggering figure that proves it’s not always as easy as it looks to manage credit responsibly – so exercise caution. Know your limits and make a plan if you feel you’ve gotten off track.

Risks aside, credit cards can be an important resource. They’re a vital building block in establishing a positive credit history, as well as a major convenience when unexpected expenses arise. Perhaps most importantly, without a track record of credit card usage, you may be at a disadvantage when it comes time to apply for a car loan or mortgage. 

“Not only are credit cards a smart way to earn rewards and be prepared for emergencies, they’re an important stepping stone for the future,” shared Michelle Goeppner, who manages Alliant’s credit card portfolio. “By using credit responsibly over time, you can show lenders you’re serious about your financial health and set yourself up for success when financing major purchases down the road.”

Start small

Though the prospect of opening a new credit card can be intimidating, it’s fiscally wise to have at least one active credit card, at the bare minimum, and to keep it open. Borrowers want to see you’re able to pay your bill on time and responsibly manage your credit card payments over the long haul; they connect your ability to pay your monthly credit card bill to your ability to pay a monthly mortgage.

In many cases, having active accounts that are fewer than five years old can be a knock against your credit score, so be wary of closing old accounts or letting cards go dormant due to inactivity. 

If you’re nervous about sinking into debt, consider using a credit card on a small, reoccurring expense, like a gym membership or Netflix account, and then paying the entire balance automatically each month. Doing so will help you establish credit history while minimizing anxiety about overspending. 

A numbers game

If one credit card is good, two or three must be even better, right? 

Yes and no.

Along with payment history, one of the most important factors in determining your credit score is credit utilization – how much credit you’re using compared to the total amount of credit available to you. 

Maintaining multiple credit cards can effectively raise the ceiling on your available credit, thus lowering your utilization rate. This can be a savvy tactic to improve your credit score as long as you don’t drastically increase spending.

For example, if you have a single credit card with a limit of $2,000 and you owe a balance of $1,000, your utilization rate is 50 percent, which may put you at risk with lenders.

Conversely, if you have two credit cards, each with a $2,000 limit, and you owe a total of $1,000, your balance remains the same but your utilization rate drops to 25 percent.

As a rule of thumb, it’s best to keep balances to less than 30 percent of your total available credit and pay debts off as quickly as possible. Interest can add up over time, especially if you’re juggling several cards at once, so only open new accounts if you’re sure you can handle the extra responsibility.  

Other considerations

While there’s technically no penalty for having multiple active credit cards (seriously, the Guinness World Record holder has nearly 1,500), new applications often require a hard pull on your credit history, which does impact your credit score.

Because of this, applying for several new credit cards at once or promptly opening and closing accounts can be a major red flag for lenders. If you have good credit and want to take advantage of new offers, pace yourself while keeping existing accounts in good standing.

Hard pulls roll off your credit report after two years, so if you do it right, there’s little harm in applying for new plastic. But once you get your new card, keep it active; having open lines of credit, including store cards, that you don’t use can hurt your credit score.  

What’s more, having cards from a variety of issuers like Visa and Discover or MasterCard and American Express, helps ensure you’re covered if a business only accepts a limited number of credit card types. It also lets you reel in a variety of different offers, ranging from miles to cash back. 

Finding your balance

Ultimately, there’s no universal right number of credit cards; it varies for each person. 

The key is to be responsible with your purchases and payments, understanding the factors that affect your credit and monitoring them regularly. Whether you’re comfortable maintaining a dozen cards or just one or two, you can use credit to show lenders you’re the real deal and build up your financial persona. You might even earn some fun credit card rewards in the process.