The average American has four credit cards. But, how many credit cards is too many? While the “right” number of credit cards to have varies depending on your current credit score, your lifestyle, and your financial goals, it is possible to increase your credit score and earn some rewards in the process if you know how to get the right mix of cards.
So, we’re sorry to tell you, we can’t tell you exactly how many credit cards you should have. But, we can give you a few resources that will help you determine that number for yourself. Start by asking whether or not the cards you currently have are right for you, then we’ll go from there.
What to Know About Credit Cards and Your Credit Score
Credit cards are a form of revolving credit that can positively or negatively affect your credit score depending on how you manage them. Like other lines of credit (auto loans, mortgage loans, student loans), credit cards are a way to show off to creditors and lenders that you’re responsible enough to handle the money they’re giving you access to.
When you sign up and get approved for a credit card, it will come with a limit. The idea is to optimize your credit utilization ratio and only use about 30% of your available line of credit. So, if your current credit card has a $1,000 limit, you should only be charging $300 at most to that card each month (and paying off whatever you owe on time).
This is the smart and most ideal way to use credit cards. Over time, you’ll be able to either increase your credit limit on that card or apply for other credit cards with different perks, rewards, and limits. Think of each of those cards as a financial tool. Sure, it’s great to have access to that credit in case you encounter difficult financial times. But, it’s better to view it as a tool to help you improve your credit score (as long as you play the game right).
Credit mix comes into play here in that, if you’re trying to improve your credit score, you’ll want to think about diversifying your accounts. Lenders love diversity. So, while it’s great to show that you can manage five different credit cards, it’s best to also have a mortgage loan or auto loan as well.
Determine Which Credit Cards Are Best for You
Before we dig into figuring out how many credit cards you should have based on your lifestyle and goals, it’s important to note that you should be careful about how many credit cards you apply for. They often count as hard inquiries and can hurt your credit score.
So, which credit cards are best for you? The ones that are going to:
- Earn you maximum rewards and benefits for using them
- Help you build your credit (i.e. are manageable for your current financial situation)
Definitely do your research before applying for a new credit card. If you do a lot of driving, then a card that earns you 5% cash back on gas. If you do a lot of traveling, consider signing up for a card that’s optimized for travel rewards (whether those are miles, hotel perks, or other travel rewards). Or, perhaps you do a lot of shopping at a specific store such as Target or Amazon; sign up for co-branded credit cards that will earn you more where you spend.
Always make sure that you will take advantage of the perks that the credit card offers you. This helps you earn more while spending, and that, in turn, can help you pay off your credit card faster and therefore increase your credit score.
Make sure you’re factoring in the credit limit when you apply for a new credit card. If you don’t trust yourself with such a high limit, think about scaling back. Or, if you’re trying to build your credit, consider getting a secured credit card with a lower limit. It will force you to truly focus on improving your credit before even thinking about rewards.
And, last but not least, make sure you’re not losing money on cards that you’re not using. It’s not usually recommended to close a line of credit as that can actually lower your credit score. However, if you’re not using the card and paying a high annual fee, it’s better to close it out. Or, try to find a way to use it enough to make it worth the fee.
Stay On Top of Your Credit
Whether you find that you’re good with one credit card or want to diversify your wallet to include cards that are more optimized to earn rewards, it’s important to monitor your credit report to check for changes.
Float is the only place where you can not only access an updated credit score for free but also choose to share your information with others, such as friends, family members, and even your spouse. Choose to share your full credit report, your credit score, or simply a fun emoji that indicates your credit range.
Stay on top of your credit and unlock your financial potential by signing up for Float today.