After a big spending spree, you might ask yourself, “Do I have too many credit cards?” “
Like most things, the answer is not clear cut. And while having multiple credit cards isn’t necessarily bad, there is such a thing as having too many, especially depending on how you use them and which ones you have.
We spoke with several financial experts to find out how many credit cards you should keep in your wallet, which ones, and how to manage them for the best results. Here is what they had to say.
How many credit cards is too much?
Have you ever heard the expression “too much of a good thing?” Well the same can be said for the number of credit cards in your wallet.
Brian Dechesare, Founder and CEO of Breaking Into Wall Street explains, “In 2020, the average number of credit cards per adult in America was three, according to an Experian report. While it’s not a bad thing in and of itself to have multiple credit cards, it’s certainly possible to have too many – and it all depends on how well you can manage your credit.
While some people can easily juggle payments on multiple credit cards (while still making good use of these cash back and rewards offers), others might struggle to meet their minimum payments.
WallStreetZen founder and CEO Nate Tsang said most banks expect people to have between three and five credit cards. “At that amount, you can reasonably capitalize on your spending through perks and reward points without losing track of what you’re spending,” he explains.
Rather than wondering how many credit cards are too many, ask yourself how well you manage them.
When counting your credit cards, don’t overlook the cards from department stores, big box retailers, or even home improvement warehouses that you’ve taken out to get the initial sign-up bonus.
“If you’re struggling to comfortably pay off a line of credit, then two is definitely too much for you,” Dechesare says. “In general, anything over four is potentially overkill, and anything over six is probably too much, even for the most disciplined and organized spenders.”
It is not so much how many credit cards you have. It’s more about making sure that you are using your credit cards responsibly. One of the best measures of this? Whether or not you pay off the balance each month.
The risk of too many credit cards
The biggest tip we heard from our experts was this: No matter how many cards you have, paying them off in full (every month) should be a top priority.
“What matters most is that you don’t burn yourself out with too much debt,” says Jonathan Svensson, Almvest co-founder. “You need to make sure you always pay your bills on time and keep your credit utilization rate low in order to maintain a good credit rating. “
Also known as the credit utilization rate, your credit utilization rate is the amount of available credit that you have used. Too high credit utilization rates can have a negative impact on credit scores.
“The problem is more about usage than number of cards,” says Freddie Huynh, vice president of data optimization at Freedom Financial Network. “Usage is how much of your available balance you are using. Credit score calculations look at usage in a variety of ways. Overall credit card usage, the sum of all credit card balances divided by the sum of all credit limits, is the most common.
But Huynh cautions that there’s also another way banks and credit bureaus calculate your usage – and that’s by looking at the greatest credit usage on an individual card. Suppose you regularly use 40% of your available credit on one card and 70% on another. In this case, a bank might only care about that 70%. Typically, anything over 30% is considered a red flag by banks.
“If you use less than 10% on each card and pay your bills on time each month, you can improve your credit score,” says Anthony Martin, CEO and founder of Choice Mutual. “But if you go over 30%, your credit utilization rate will be too high – and if you mix that up with missed payments, it can take a big toll on your score.”
What Kinds of Credit Card Accounts Should You Have?
Now that you know a little about how to manage your credit card collection, let’s discuss the types of accounts and credit card issuers you have in the mix.
While store cards are often a popular choice (who doesn’t want those extra deals at their favorite store?), You’ll want to make sure you get a great deal before opening one.
“I generally avoid store credit cards because their interest rates tend to be high,” says Svensson. “They are also limiting because they can only be used in that one store. “
Other things you will want to check before opting for a new card include the annual fee, the rules around rewards and cash back, and any additional perks. There are many great reward cards that will help you earn money or points on certain purchases (like gasoline) or more generic purchases. As for the additional “perks” associated with store cards: keep in mind that many are in fact available without the card.
When deciding which cards are worth a place in your wallet, it’s helpful to start by looking at your spending. Would you be more likely to use your card to make purchases at a particular store or to refuel? If it’s gasoline, then maybe the store card isn’t for you.
Choose your cards according to your spending habits and you will also be guaranteed to have the best rewards in your wallet.
The same rule of thumb can apply if you think you have too many credit cards and want to collect them. Just be sure to follow these precautions anytime you cancel credit cards.
Conclusion on Credit Card Accounts: Choose Wisely
In order to get the most out of your credit cards, you’ll want to take the time to carefully choose the best rewards cards and develop a plan for using them wisely.
When in doubt, start small with one or two credit card accounts until you know how to pay them off and use those rewards. Then you will be able to iterate your spending plan and find the perfect credit card balance for your lifestyle.
Contributor Larissa Runkle writes frequently on finance, real estate and lifestyle topics for The Penny Hoarder.
This was originally posted on The Penny Hoarder, a personal finance website that empowers millions of readers nationwide to make smart decisions with their money through practical and inspiring tips and resources. on how to earn, save and manage money.