We hear mixed messaging about credit cards all the time. On the one hand, they’re heralded as a way to build your credit score and earn rewards. On the other, financial experts warn of the dangers of credit card debt, cautioning Americans to limit their credit usage or forego having a card altogether.
This leaves many people scratching their heads, wondering how many credit cards is the “magic number.” As with any question pertaining to personal finance, the answer will depend on factors like your income, your spending habits, your credit score and your money goals. But there are a few rules of thumb we can all keep in mind as we strive to optimize how we use credit.
Credit Habits of Cardholders with ‘Excellent’ Scores
There’s no one-size-fits-all approach to managing your credit. What works for some is detrimental to others, and vice versa. Still, it’s useful to look at the habits of people who have achieved an excellent credit score of 750 or above (on a scale of 350 to 800+).
As CNBC cites, people with excellent credit have an average of six credit cards, including open and closed accounts. In terms of open, active accounts, these borrowers have an average of three cards. But, as one expert reminds us, the number of cards you have is always less important than how you manage those accounts. Making payments on time and keeping the percentage of credit in use low are far more influential factors.
Adding another credit card or two to your arsenal can positively affect credit by raising your limit, which means your credit utilization rate goes down. Holding onto old cards can also boost the average age of your accounts, which in turn can positively influence your score.
Consider Your Credit Card Debt — or Lack Thereof
A sign you may be overextending your spending on credit is finding yourself struggling to keep up with payments — or paying only the minimum amount due while interest causes your balances to keep inching upward. Having a handful of cards may give you too much opportunity to incur debt beyond your means.
Want to know how tough it can be to climb out of credit card debt? Thousands of people have shared their struggles online. Many people reach a point where they feel they can no longer handle their credit card debt on their own — like the writers of these Freedom Debt Relief reviews, who decided to enroll in a settlement program after amassing $7,500 or more in unsecured debts.
Before you sign up for another card, take a good hard look at your existing accounts. Can you pay down the balance on each one every month? Or are you steadily accumulating debt as you go? It’s advisable to avoid opening another account if you’re already struggling to pay off your outstanding balances.
Calculate Your Rewards vs. Your Fees
Credit card offers are shiny new things, promising a bounty of rewards. Cash back! Free travel! Airline miles! No interest for six months! But to truly evaluate the worthwhileness of opening another account, you’ll need to do a quick cost-benefit analysis.
Tally up the rewards you’re reaping from each card vs. the annual fees you pay to do so. You may find you’re actually paying more to keep an account open than you are benefitting from it. However, if you crunch the numbers and you’ll surely gain more than you’ll spend, a certain card may be a good fit for you.
Only you can decide how many credit cards you should have. While having more accounts can help you boost your score, it all depends on using them responsibly. Make sure you have a handle on your credit card debt before adding another card.