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So how many credit cards should you have? Well, just like a lot of answers to personal finance questions - it’s going to depend on your specific situation.
According to a study by CNBC, the average American has 4 credit cards.
But, why?
Well, it’s not always because they have a problem with debt if that’s what you were thinking...
Believe it or not, having multiple credit cards can actually be a smart strategy for your personal finance endeavors if you understand what you’re doing.
But, why on earth would someone want multiple credit cards if they don’t need them? That sounds like such a headache, right?
Are there benefits to having more than one credit card?
Are there drawbacks to having multiple credit cards?
Does it really help my credit score to have multiple credit cards?
Hmmm… These are all great questions and we’re going to get to the bottom of this together!
In this article, we’ll be talking about credit cards and why you might want to have more than one in your pocket.
Here’s why you might want multiple credit cards
Increase your available credit
Believe it or not, having multiple credit cards can actually help your credit score as long as you’re paying off your monthly payments. This is because your credit utilization is a large determining factor of your credit score.
The idea here is that if you have a higher credit limit, then you have more room for utilization. And if you have more credit cards, then usually that means you have a higher credit limit.
Let’s use an example!
Example: Let’s say you have a credit card with a limit of $2,000. You use your credit card every month for $1,000 of expenses. This means you have a credit utilization rate of 50%.
And according to most credit card experts, you want to keep your utilization rate under 30%...
So, if we add another credit card into the equation - let’s say with another $2,000 limit - then you would now have a total of a $4,000 credit limit.
And if you continue to only use $1,000 of your credit card, your utilization would be at 25% instead of 50%... This is because you’re using $1,000 out of $4,000 instead of $1,000 out of $2,000.
Maximize your rewards
Maybe you’re someone who wants to earn hotel points, flying miles, or earn cashback rewards. If traveling and getting cashback rewards is part of your ideal lifestyle, then having multiple credit cards may interest you depending on their rewards programs.
You’re a small business owner
If you’re a small business owner, you have access to a multitude of different business credit cards. Some business cards are designed for cashback rewards while others are designed for travelers.
Here’s why you might only want ONE credit card…
You want to keep life simple
Maybe you don’t want to worry about multiple credit card payments. Maybe just want to use one credit card to build your credit. Maybe you don’t care about the extra perks that credit cards can offer. The simple fact is, having one credit card makes it easier for you to track your spending.
You don’t want to deal with annual fees
The credit cards with the best rewards usually come with annual fees. So if you aren’t interested in benefits and don’t want to pay a fee just to have a credit card, then having one card might be the ideal path for you.
Things to keep in mind when deciding how many credit cards you should have…
Your Credit Score
Remember, to qualify for the best rewards programs, you’re going to need an outstanding credit score.
Consider checking your credit score to see where you stand. Then you can have an idea of what types of cards you qualify for or if you need to work for a few months to boost your credit score first.
Can you handle credit cards?
If you struggle with paying off credit cards, then you should consider avoiding credit cards for now. Credit cards can come with many benefits, but if the debt is a problem, then you may want to consider sticking to using cash and debit cards to keep yourself stress-free.
Your length of credit
Keep in mind that your length of credit is a determining factor for your credit score. And your length of credit is determined by the average amount of time you’ve had all of your credit cards.
So if you open a new credit card, you will likely see a short-term drop in your credit score. But after a few months, you can expect to see an increase in your credit score if you’re paying off your monthly balance.
Don’t open them all at once
If you decide that you want to own multiple credit cards, it’s important that you don’t open them all at once. Opening multiple credit cards in a short period of time can have a negative impact on your credit score. So, take your time and be picky when it comes to choosing what credit cards you want to add to your arsenal.
How to choose how many credit cards you should have
If you’re interested in having more than one credit card, you should consider having credit cards that work well together.
What the heck does that even mean?
For example, American Express offers the Amextrifecta. Which is a bundle offer of 3 credit cards by American Express. The trifecta is designed to complement each other if you’re a frequent traveler. Each card has different benefits including travel points, hotel points, and even dining and grocery rewards.
So, you can see, that there are some credit card companies that make the decision easier for you by providing options with credit cards that complement each other.
If you research different types of credit cards, they’ll all come with different benefits and perks. The number of credit cards you have can be justified if they all serve a purpose.
So, when deciding how many credit cards you should have, just ask yourself if the credit card you want will serve a purpose. You might use one credit card for grocery shopping while you use another credit card for your business expenses. But if they don’t serve any real purpose, then you may be wasting your time and money on extra annual fees for that card.
What now?
It is definitely possible to thrive without a credit card.
But if you think about it, credit cards give you rewards just for buying things. And if you already have monthly expenses, then you might as well earn rewards from purchases you’re going to make either way, right?
But remember, there’s no pressure to have multiple credit cards in your wallet. This article isn’t meant to persuade you to get more credit cards than you can handle.
There is contrasting advice out there in the personal finance space. Some personal finance experts like Dave Ramsey discourage people from having a credit card at all. And this article is meant to show you that having multiple credit cards can be beneficial for you if you’re responsible with your expenses.
Your next step as a personal finance enthusiast is to research credit cards. Research the different rewards that are out there and begin to build your credit!
And if you ever hear someone say that debt is bad and credit cards are evil, you can share this article with them so they can learn a thing or two!
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