How Many Credit Cards Should You Have?

Figuring out that magic number is about finding the right formula for you.  

Morgan Sliff
Contributing Writer at Tally

The world of credit, credit scores and credit cards can be a tad dizzying. Within this expansive world are miles of percentages and calculations that converge to determine certain things you’re able to do in life — stuff like getting a car, a loan, a house and even certain jobs.

One question points to a considerable piece of the credit puzzle: What is the magic number of credit cards you should have? The answer has the ability to tip the scales on your credit score, and with it, putting or removing limitations on money-related opportunities.  

Credit cards are not the only factor affecting your credit score, but having the right number of cards can give you an upper hand in many circumstances. We’ll help you determine your magic (and responsible) number of credit cards, but first, you need to understand how credit cards affect your credit score and why this matters.

How do credit cards affect your credit score?

You’re likely wondering how your credit cards and credit score intersect.

Your credit score is a three-digit grading scale between 300 and 850, with 300 being the lowest and 850 being a perfect score. According to Experian, one of the three major credit reporting bureaus, here’s how credit scores are graded:

  • Very Poor (300-579)
  • Fair (580-669)
  • Good (670-739)
  • Very Good (740-799)
  • Exceptional (800-850)

Your credit score is important because it will likely be a determining factor in nearly every area that involves you obtaining money — loans, insurance rates, jobs and more. The higher your score, the less limited you’ll be in money-related avenues.

Now, here are the factors that go into your credit score and how much they affect it:

  • Payment history: 35%
  • Credit utilization: 30% 
  • Length of credit history: 15%
  • Credit inquiries: 10%
  • Types of credit: 10%

Possessing a credit card affects every single category listed above. And, as you can see, making on-time payments is the most important piece of the credit pie. But the number of credit cards you have is especially important when it comes to your credit utilization.

Can more credit cards increase your credit score?

If you want to increase your credit score, it’s possible to do this by improving your credit utilization rate, which is the amount of credit you’re using at any given time compared with the amount of credit available to you. (This is also referred to as your credit utilization ratio or your debt-to-credit ratio.)

The single best credit utilization amount is 0%, or zero debt. But if you carry a balance on your credit cards, you want to do your absolute best to keep that balance under 30% of your credit limit. Here’s an example:

Let’s say that your total credit limit is $16,000 between your three credit cards. And let’s also say that the balances are broken down as such:

Credit card 1: $2,500 balance / $5,000 credit limit
Credit card 2: $1,500 balance / $4,000 credit limit
Credit card 3: $3,000 balance /$7,000 credit limit

Based on these totals, you collectively have a $7,000 balance and a $16,000 credit limit. That equates to a 46% credit utilization rate.

For reference, here’s how credit utilization is measured:

  • Great: 0% – 9%
  • Good: 10% – 30%
  • Fair: 31% – 60%
  • Poor: 61% – 100%

A simple solution to boost your credit score could be to apply for a third credit card. Here’s another example:

Let’s say you’re approved for another credit card (using the example above) with an $8,000 limit. That would increase your credit limit to $24,000 and decrease your credit utilization rate to less than 30%.

Sometimes, opening a new card increases your score only by a little. In other cases, it can significantly improve your credit utilization rate, which makes your credit score skyrocket.

The number of accounts in your credit history affects these numbers, too. Opening an additional credit account could add a few bonus points to your score.

Not so fast! The case for fewer credit cards

More credit cards can improve your credit utilization rate, but this doesn’t necessarily mean you should start chucking out applications.

Getting more credit cards can increase your credit limit and credit score, but it can also ferry you down a different path — one that leads to heaps of debt and a plunging credit score. Here’s why:

More payments to remember

If you carry a balance on a new credit card, you have to remember to make yet another payment. (Don’t forget: On-time payments are the most important of the credit factors.) And if you happen to miss a payment or two on your new credit card, your credit score could drop to exceedingly low numbers.

Potential for more debt

Credit cards can be a black hole of debt. As we see in a study by Experian, the average credit card balance in 2017 was $6,354. A new credit card swings open doors of spending temptation and could pose a threat of digging you into more debt.

More hard inquiries

Applying for a credit card means a hard inquiry on your credit report. This also has the potential to drop your credit score.

Whether getting another credit card is right for you depends on how responsible you are with balances and payments. If you currently have a balance and are looking to improve your credit score, it may be better to focus on paying down debts you already owe.

So, how many credit cards should you have?

According to data from TransUnion, the average American has 2.69 credit cards. But these numbers don’t mean much for you and your current situation.

Finding the right formula for you means gathering the information available, stepping back and considering the bigger picture. Ask yourself the following questions and answer them honestly:

  • How has my spending and balance history been with credit cards that I’ve owned?
  • Am I likely to keep a low balance if I get a new credit card?
  • What’s the potential benefit to me if I get another credit card? (Sit down and do some math with this one.)
  • Do the benefits of a new credit card outweigh the potential costs?

Remember: Getting a new credit card is a serious decision. Take the time to carefully think about why you want a new card and how it might affect you before filling out any applications.