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According to Experian’s State of Credit report issued in May 2019, the average number of credit cards held by American consumers checked in at 3.04 for 2018, virtually identical to the previous year’s figure of 3.06, and only slightly lower than the number from ten years before – 3.4 in 2008.
Therefore, for most people who use credit cards, it would seem that having around three cards is the norm. However, according to FICO, individuals with strong credit scores of 750 and higher – “FICO Score High Achievers” – tend to pursue new credit more often and tend to have more open, active revolving accounts – as many as eight to ten. So, how many credit card accounts should a person have?
Does having more credit card accounts lead to a higher credit score? Let’s take a closer look.
Credit Cards and Credit Scores
One of the reasons to get additional credit cards is because doing so can increase your credit score, if you do things right. When an individual gets another credit card, the amount of total available credit to that person rises. Simple enough. Not only does the individual’s purchasing power increase with the additional credit line, but it is also the case that a FICO credit score can be driven higher.
This is because the credit utilization ratio – or the percentage of total available credit that is actually borrowed – will initially go lower. Credit utilization ratio is a significant contributor to the computation of a FICO credit score, contributing approximately 30% to the calculation of the score.
Creditors like to see a credit utilization ratio in the neighborhood of 25% or lower, so by expanding available credit – particularly if most or all of the new credit lines remain untapped or are quickly paid back – a FICO score can rise. Similarly, opening multiple accounts and keeping them active for a number of years will lengthen your average account age (over time) and this will strengthen a credit score as well.
Benefits of Multiple Credit Cards
Apart from strengthening a FICO credit score, there are additional benefits that can result from having additional credit cards. The credit card marketplace is competitive, with creditors vying for your business by offering various perks to lure you in.
Therefore, for responsible credit card users, it can make sense to have a “portfolio” of credit cards that cover the bases on the wide range of benefits available.
For instance, one card may have a generous rewards program related to airline miles, another may offer up to 5% cashback from a variety of retailers on a quarterly basis, another may give 2% cash back at gas stations all year-round, another may offer a low introductory balance transfer promotion, and so forth.
Very quickly, it can make sense for the disciplined cardholder to pursue multiple cards for their multiple loyalty programs, and this is in addition to the potential credit score benefits that can result.
Furthermore, it can also make sense to have separate cards for personal spending, with an additional card that is used solely for business purposes. Finally, an extra credit card account can come in handy in an emergency when a primary card is lost or stolen.
More Credit Cards, More Problems
However, this is where crucial self-examination comes in. If you are not the type of person who quickly pays off your credit cards each month and carries only a small amount of revolving debt while consistently living within your means through a carefully constructed written monthly budget, do not attempt a strategy of maintaining multiple credit card accounts.
If you are the type of consumer who lacks the discipline to leave an extra credit card or two largely untapped or doesn’t pay more than the minimum back each month, it doesn’t necessarily make you a bad person. However, it does make it a bad idea for you to pursue multiple credit cards for their loyalty programs or any other reason.
Simply put, any lack of self-control places you at risk of venturing toward the dangerous territory of accumulating onerous balances of high-interest rate revolving debt on multiple cards with multiple creditors.
As if having to pay added amounts of interest expense weren’t bad enough, when you factor in the need to keep track of which creditor to pay how much and when, along with the risk of missing a payment or defaulting on one or more cards because of suddenly getting in over your head with too much credit card debt – then getting multiple cards just isn’t worth the trouble.
Plus, you’ve got to consider whether some of your extra cards come with high annual fees that just won’t be worth the added cost.
The Bottom Line
Opening additional credit card accounts and maintaining them responsibly can lead to multiple benefits. These benefits include greater purchasing flexibility, strengthening a credit score and profile, accruing various rewards through loyalty programs, enjoying separate accounts for personal and business expenses, and simply having an extra card available in case of emergency.
These all make sense, if you are a disciplined cardholder who already manages your existing accounts responsibly. Therefore, for some people, the answer to the question of “How many credit cards should I have?” leads to the resounding answer of – NONE!
This unfortunately applies to those at the other end of the spectrum who simply aren’t responsible enough to stay out of trouble with credit cards – individuals who live beyond their means and accumulate onerous levels of high-interest rate debt that eventually causes problems in their lives. The important element to gauge, therefore, before deciding whether to pursue multiple credit card accounts – is where do you fall on the spectrum?
About The Author: Steven Brachman
Steven Brachman is the lead content provider for UnitedSettlement.com. A graduate of the University of Michigan with a B.A. in Economics, Steven spent several years as a registered representative in the securities industry before moving on to equity research and trading. He is also an experienced test-prep professional and admissions consultant to aspiring graduate business school students. In his spare time, Steven enjoys writing, reading, travel, music and fantasy sports.