How Many Credit Cards Should You Have?

According to Experian, the average number of credit cards carried by American adults is four. We all know someone who flashes a wallet stuffed with credit cards. Walter Cavanagh made the Guinness Book of World Records with 1,497 credit cards! So, what is the right number?

The answer, as you might expect, depends. The right number has everything to do with your particular situation – your spending habits, your budget, your debt loan and, most importantly, your ability to manage credit. For some people, credit cards can be an effective cash management tool; however, for others they present a temptation to spend beyond their means. When you consider that the average household has nearly $8,000 in credit card debt, it’s clear that most people do a poor job of managing their credit.

What’s the Right Number?

One

One credit card is sufficient for most people, to be used for emergencies or when they’re caught in a temporary cash crunch. The problem is, if you run up the balance and are unable to pay it in full each month, the credit card is no longer of much use. If you use it sparingly or just for budgeted purchases and can pay the balance each month, it can be more than adequate.

Two

If you have been carrying just one card and are considering adding another, there are three reasons for doing so: 1) You want to increase your available credit to keep pace with your spending; 2) You want to make a major purchase, such as new TV and need a card with a higher credit limit; 3) You have demonstrated that you are responsible with credit and want to continue to build your credit score. All three are valid reasons for adding a credit card as long as you have the capacity to pay the balance in full each month.

Three or more

If you are able to effectively manage your credit and finances, adding a third or fourth card makes sense if it can improve your financial situation. For example, if you are trying to increase your credit score, adding a credit card can help. However, if you use up too much of your available credit, it can hurt your score. It doesn’t matter how many credit cards you have, if you use more than 30 percent of your available credit, your credit score will suffer.

One of the biggest reasons people add credit cards is to earn rewards for their purchases. When used responsibly, rewards credit cards can help you pay for future purchases with cash back or points that can be redeemed for cash. However, if you carry a balance on a rewards credit card, the interest charges can negate the benefits of the rewards.

If you find yourself carrying a balance on your first two credit cards and they have a high APR, you can see if you qualify for a zero or low interest balance transfer card. When you transfer a balance, your focus should turn to paying off the balance before the expiration of the promotional period while regaining control of your spending.

When Adding a Card Can Hurt More than it Can Help

If the reason for adding more credit cards is because you are continuing to spend beyond your means, you risk the potential of entering a debt spiral by paying for debt with debt. That is the reason the average credit card balance in the U.S. is over $7,500 and nearly 4 percent of credit card users default each year. Carrying more than three or four credit cards is either an indication of your ability to effectively manage credit or it is a sign you have trouble controlling your debt, in which case, adding a card will only make things worse.

The Final Answer

The only right answer is the one that best fits your circumstances and your capacity to manage credit. While adding more credit cards can help you build your credit score, it can also make it more difficult to manage your credit. For most people, the right answer is to carry only the number of cards they can comfortably manage while staying in control of their spending.