How Many Credit Cards Should I Have?

Summary: We discuss a number of critical factors that need to be considered when deciding on the proper number of credit cards you should have.

Credit Utilization Ratio: How to Find Yours

To find your utilization ratio, add up the total amount of credit that is available to you through your cards.

Then, figure out how much debt you have outstanding on those cards.

The percentage of your debt relative to your credit limit is your utilization score. The lower the score, the better your credit.

It makes more sense with an example.

Let’s say I have four cards, each with a $25,000 limit. Adding up those credit limits gives me my total available credit: $100,000.

Next, I add up my balances on each card:

Now, I divide my total debt by my total available credit:

23,500 / 100,000 = .235, or 23.5%

With a credit utilization ratio of 23.5%, I’m in pretty good shape.

Most credit bureaus require your ratio to be under 30% to be considered a good credit risk.

How to Improve Your Credit Utilization Ratio

Most people assume that cancelling credit cards improves their credit score. After all, reducing your availability to credit shows that you are a wise and thoughtful borrower! 

But lowering your credit access can actually make you look like more of a credit risk.

Sounds strange, right? 

But you’ll see why when you do the math.

If we go back to my original example, let’s say that I pay off credit card 2 for $1,000 and then cancel the card.

Here’s my new ratio:

22,500 / 75,000 = .3 or 30%

By paying off a card and reducing my available credit, I’ve actually increased my utilization score. 

And since this number can account for up to 30% of my overall credit score, it may have even cost me some valuable credit points.

Based on those calculations, you might come to the conclusion that the more credit cards you have, the better. But that would be taking things too far in the other direction.

While more credit may bring your utilization score down a little, getting credit for credit’s sake is not a good idea. 

Why You Shouldn't Get Too Many Credit Cards

They’re practically immortal. Cancelling a credit card doesn't make it go away. It lingers on your credit report--menacing and ghostlike--long after you’ve cancelled it. It can stay there for up to 10 years,  in fact! 

Anything on the report influences your credit score. Cancelled cards that had a positive history will boost your numbers (good for you!). But cancelled cards with a negative history will continue to chip away at your credit status. 

Credit then, like fine wine, good chocolate, and Netflix binging, is something that needs to be managed with moderation.

On the one hand, you want a few cards that you can use and pay off regularly to show that you can be trusted with credit. But if you abuse that privilege, you’ve essentially put a red flag on your account.

How to Find Balance

Figuring out where your “sweet spot” of moderation is doesn’t have to be difficult or time consuming. Just take stock of the cards you’re using now and figure out which ones provide you with the most value. 

Provided that it is in good standing, plan on keeping your oldest credit card. It shows that you have a long history of managing debt responsibly.

You may also want to keep cards that don’t have an annual fee because that will save you money in the long run.

If revolving credit shows up as one of your risk factors, then go ahead and cancel every card that didn’t make your A List. That will clean up your credit report while still giving you access to your most important cards.

If there is no mention of your open accounts, then they probably aren’t affecting your credit score. You don’t necessarily need to cancel them, but you can still make some smart adjustments.

Pay off any cards that are on your B List, and then retire them to the bottom of your sock drawer (or somewhere else where they can’t tempt you).

They’ll still be available if you need backup credit, but you won’t be tempted to use them for impulse purchases.

No Magic Number

There’s no “right” number of credit cards to have.

Credit bureaus look at your entire credit situation, not just your number of cards, to determine what kind of borrower you are.

Keeping in mind that several credit cards can improve your credit utilization score but too many cards can increase the likelihood of overspending, it’s up to you to find a balance.

Think of yourself as a financial Goldilocks, figuring out where the “just right” spot is between too few and too many.