The average Millennial has 2.5 credit cards each, while the average Baby Boomer carries approximately 3.5 credit cards a person.
How many credit cards should I have? Well, the answer is not as clear cut as you probably hoped for.
In general, experts suggest you carry 2 or 3 credit cards. Make sure these cards are from different networks (Mastercard, Visa etc) and that they award you with different perks.
However, keep in mind that this is not a one size fits all solution to your question of how many credit cards are enough or too much.
In fact, the amount of credit cards you should be carrying is based on you as an individual, and the answer really boils down to thinking about your personal finances, spending habits, responsibility with the cards, and the rewards you are looking for.
With so many new promotions, deals, and perks that come with credit cards today, that quick sign up with the cashier to get reward points or a 10% discount off your purchase can be tempting, but is it the most wise choice for your long-term financial gain?
In order to answer this question of “how many credit cards should I have” for you, I am going to walk us through the different scenarios that would compel people to add more credit cards to their name, and the pros and cons of each decision.
The Bottom Line: Living Without Credit Cards
This might come as a surprise if you are the kind of person who already has a few credit cards, but a lot of people opt to live without.
For some, the idea of spending money you might not have crosses a line that they do not want to cross. In fact, 20% of Americans do not own a credit card.
This means that all your purchases are done through debit or cash: no monthly credit card bill to pay, and no concern about interest adding up if you are late on a payment.
The benefits of living credit card free really boil down to being more disciplined about your spending habits and knowing what you can and cannot afford.
This is ideal for younger people who are just entering the world of finance and still do not have a consistent income.
However, no matter your age, the harsh reality is that if you have no emergency savings stored away, if you intend to spend more than you have to your name, if you do not have a reliable income, or if you have no intention of budgeting or managing your spending, it is best to avoid credit cards for now or else you could end up in a complicated financial situation.
On the other hand, the biggest downside of not getting a credit card as soon as you are in the right place in your life to own one is that without a credit card, it is harder to build your credit score.
What is a credit score? For those not familiar with this term, the simplest way to explain credit score is that it represents your “creditworthiness” or your likelihood of you to pay your bills on time. By making consistent and on time payments on your credit card build, you can build your credit score.
An ideal credit score is around 750 or above. And, a credit score becomes important when you are looking to level up in life, whether that be renting an apartment, applying for a mortgage, or taking out any major loan.
Employers can also check your credit score, and a higher credit score makes you eligible for different discounts on things like insurance or high reward credit cards that you otherwise would not be considered for.
However, keep in mind that credit score, albeit important, is not the be all and end all of having good finances.
Your priorities should always be to maintain enough cash flow to provide for yourself and your dependents, as well as saving money and paying down debts. When you have that covered, you can then consider building credit.
Keeping Things Simple With a Single Credit Card
So, you know that you want to carry at least one credit card to start.
This will help you build a credit history and increase your credit score as you pay your bill on time. But which one should you pick?
For people who carry just one card, I for the most part recommend going with one that does not require annual fees, especially if it is your first credit card and you are still building your personal finances.
A lot of no fee credit cards offer cash back rewards and I would opt for those. Usually, you will make a ballpark 1% cash back reward on all the purchases you make on that card. While that sounds nominal, I promise you it adds up.
Some credit cards take this benefit a step further by offering something like 5% cash back when you purchase things like groceries or gas with the credit card.
These bonuses compel you to use the card for daily purchases which helps you build your credit history.
Adding More Credit Cards Without Racking Up Annual Fees
Once you get a better understanding of the different cash back rewards that different credit cards provide, you can begin to “shop around” to find the cards that will give you the best rewards for your personal spending habits.
This is how the average person begins to obtain 2 or 3 cards. However, I would make sure that you are still prioritizing credit cards with no annual fees, because say 3 cards with annual fees of more than $100 each can quickly add up and become more of a burden to your finances than a benefit.
To decide on your personalized credit cards, think about where you shop the most. I have signed up for a Walmart credit card solely because it was where I was doing the bulk of my shopping for my family, so the cash back rewards were particularly worth it.
You might also consider this for Target, Macys, Home Depot, or Amazon for your online shopping habits. If you travel frequently, you might consider credit cards that give air miles rewards to save money there.
Of course, do not get disillusioned by these rewards: in the case of credit cards, you have to spend money to make money and so it is still important to be responsible when it comes to managing your budget.
While the cash rewards or air miles are a great choice, they will by no means turn around someone’s bad financial situation.
Annual Fees for Bigger Kick Backs
If you notice that you are spending enough money in a certain area of your expenses, like grocery or travel, you might consider opting for a credit card that has annual fees, but in turn offers you even bigger rewards.
Now, here is where you need to be careful, because credit cards with annual fees can cost you anywhere from $100 dollars a year to a steeper $500.
When you start to consider adding annual fee credit cards to your name, make sure you have crunched the numbers and are confident that the card will be worth your hard earned money.
Be sure as well that as you obtain more credit cards, you are not falling simply for the appeal of the awards.
The more credit cards you own, the more split your spending will be across the multiple cards, meaning that you will be putting less expenses on each card. And less expenses on each card can potentially result in less cash back.
As well, it quickly becomes an organizational nightmare remembering to pay all these separate bills on time, and the last thing you want to run into is an overdue bill with interest.
So, the short answer to “how many credit cards should I have” levels down to how much risk you want to take with annual fees and chasing bonuses, and how much organizational effort or brain power you want to put into your credit card ownership. The answer will absolutely be different depending on the individual.
Other Factors to Consider With Owning Multiple Credit Cards:
1. Credit Balance
Without careful budgeting, credit balance can quickly become a problematic number. Credit balance is the amount of money that you owe your credit card company, and it grows with each purchase you make.
At the end of your billing cycle, you are required to pay off that credit balance that you owe, in order to build or maintain your credit score.
Interest can also make credit balance a slippery slope. If you opt to pay only the minimum amount on your credit card billing statement, this remaining balance rolls over and incurring interest, and no one wants to pay even more debt than they originally owe. This can also negatively impact your credit score.
Credit balance circles back to the question of “how many credit cards should I own” because in an ideal world, you want to keep your credit balance at zero and not carry over any unpaid purchases.
If you think that task will be more of a challenge with added credit cards, stick to 1 or two at most.
2. Credit Utilization
Another factor that impacts your credit score is credit utilization. This is the amount of credit you have used in comparison to how much credit your cards have approved you for. If you are maxing out on the credit available to you, this can decrease your credit score.
Advisors will often recommend that you use between 10% and 25% of the credit available to you. This is something to consider before you close a credit card.
You could decrease the amount of credit you have available while keeping the amount of credit you are using unchanged, thus increasing this credit utilization percentage.
On the other hand, if you obtain a new credit card and also keep the amount of credit you use the same, you can lower this credit utilization score to something more optimal. Again, the choice is yours, and really depends on your personal financial situation and needs.
3. Credit Repair
If you are trying to come back from a poor credit rating, it is important to recognize that opening up a new credit card does not automatically increase your score.
In fact, until you begin to make regular payments and keep your credit utilization percentage low to prove your creditworthiness, a new credit card can actually lower your score.
If you are aiming for credit repair and considering using credit cards to contribute to your credit rating, know that this is a long term game.
Your credit score can only improve after you maintain a low balance and increase your credit limit to optimize your credit utilization.
If credit repair is your problem, credit cards are not your solution. You want to address your financial problems by budgeting, paying off debts, and I always recommend consulting a professional for advice to people who have a low credit score.
As you have probably come to realize from reading this article, the question to ask yourself is not “how many credit cards should I have?” but rather “consider my personal situation and finances, what number of credit cards is best for me, and which ones?”
As well, your answer to the question of what number of credit cards is optimal for you as an individual will change over time as you experience changes in your income, go through different stages in your personal life, want to make larger purchases, or want to get the most for the purchases you are already making with cash bonuses and rewards.
At the end of the day, credit cards are not something to go into with a blindfold on. When signing up for a card, whether it be your first or an additional one, make sure you have a good awareness of your finances and the conditions of the card so that you can be confident that it is the best choice for you.