How Many Credit Cards Should You Actually Have

There isn’t a magic number of credit cards you should actually have. If you know where to look though, there are plenty of guidelines out there suggesting how many credit cards are optimal for you to have, in order for you to maintain your best possible credit.

Walter Cavanagh, as an extreme example, has 1,497 valid credit cards which amount to a $1.7 million line of credit. He’s the record holder in “Guinness Book of World Records” since 1971, and the book gave him the title “Mr. Plastic Fantastic.” Most suggestions, however, range from a few cards up to a dozen, and this is why…

Credit Scores and Cards

Your credit score is a measure that creditors use to assess your potential credit worthiness, so that the higher your rating, the less of a credit risk borrowers will perceive you to be. A high score will help you secure a car loan, or a loan for a home, as well as help you get more favorable terms than if you have a lower credit score.

Your payment history makes up 35 percent of your credit score, while your total debt owed amounts to 30 percent. 15 percent is the length of your credit history, 10 percent any new credit that you have taken on, and 10 percent the type of credit you have used.

The number of credit cards that you have influences the smaller percentage categories. The more credit cards you have, the more credit is available to you, but if you run up your debt, you may be unable to pay for new loans. The best you can do is to responsibly manage a small number of credit cards, to show a good payment history. Ironically, if you carry a balance on your credit cards instead of paying them off every month, you are likely to get a higher credit rating than if you pay off everything each month.

Practice Good Credit

Credit card companies make money only off of people who pay interest, so if you can’t afford to pay off your accounts in full, you may end up getting more deeply in debt since your high credit scores allow you access to access even higher credit limits. This is something to be very aware of, in order not to fall into the credit card trap. However, if you have no credit cards at all, the lack of a consistent payment history will be considered riskier for potential lenders.

If you spread out your balances on a number of different cards, you can avoid hitting your credit limit on one particular account. More credit cards will give you more credit to work with, and opening new credit cards may earn you better rewards deals, such as cash back. However, maintaining, opening and closing accounts will also reflect on your credit risk and behavior, as they are among the factors figured into your credit score. Here is how that works:

Your credit card utilization is highly influential with regard to your score. As we’ve seen, the more credit cards you have, the higher your available credit limit will be. However, every time you apply for a card, a hard inquiry is made, which will cause your credit score to drop by a few points. The more inquiries you make, the more your credit score will drop. The impact will decline as the inquiry ages off of your report, but it will take some time. One way to get around that is by asking your credit card company to increase your limit instead of applying for a new card. The higher credit limit will improve your score without the hit of a hard inquiry, and you’ll have less credit cards to manage.

Credit Behavior Patterns

Your recent credit behavior is a factor that is determined by the number of new accounts you’ve opened. It isn’t the most influential, but opening a lot of new accounts in a short period might suggest to a lender that you’re desperate for credit. At the same time, having several accounts also shows that more lenders believe in your ability to repay debt. A variety of account types on your report actually establishes a positive track record of responsible credit behavior.

All this taken into consideration may suggest that it’s beneficial to have several credit cards, but also that it’s crucial to manage them well. Don’t apply for too many at the same time and don’t utilize more than 20 percent of each card’s limit each month. It doesn’t hurt to owe this small percentage but it’s very important to keep your payment history immaculate. If you do have a long credit history and an excellent credit score, new accounts will not have noticeable impact on your score.

So, have we gotten any wiser on how many cards we should actually have? If you have at least three credit cards, you can spread the balance out to keep it at 20 percent and protect your credit score. Mint’s credit reporting tool lists 0-5 accounts as “poor,” while 6-12 accounts is “not bad.” Having 13-21 accounts is “good,” and over 22 accounts is “excellent.” However, having just three accounts may not be bad in itself. It could very well be that the people with good credit was allowed to open 22 accounts, but would have the same excellent credit with only three accounts. Instead, the people listed with only three had poor credit and wasn’t permitted to open any more accounts, hence dragging down the statistics.

Also, the credit score is calculated from all types of credit, and not only from credit cards. Mortgages, auto loans and even personal loans may also be listed on your credit report. While this article has hopefully offered some pointers to take into consideration when handling your credit accounts for maintaining your best possible credit score, the number of credit cards you should actually have is a number only you can determine yourself.

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photo credit: Sean MacEntee Credit Cards and Cash via photopin (license)


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