Q: I got my first credit card when I was in college and have been using it regularly to build credit. I always pay off my card balance. Now that I’ve got stable income and I know I should open more credit cards to improve my credit. So I wanted to know what is a good number of credit cards to have?
– Zoe C.
A: While it is a good idea to start establishing a decent credit profile, there is no “correct” number of credit cards that you should have because responsible credit management is vastly more important that how many credit cards you’ve got.
Here is the criteria used to generate a FICO credit score, the credit score used most often by lenders: payment history (35%), amounts owed (30%), length of credit history (15%), new credit (10%) and types of credit used (10%).
Note that none of the criteria mentioned the number of credit lines. It’s possible for a responsible consumer with a single credit card to have a better credit score that an irresponsible consumer with 15 credit cards.
One possible benefit of more credit cards is the increased credit availability, under “amounts owed,” which would decrease your debt utilization ratio (total debt divided by total combined credit limits).
For instance, you have a $100 balance on a credit card with a $1,000 limit, which means it used 10 percent of your available credit. After qualifying for another credit card with a $1,000 limit, you will only be using 5 percent of your available credit. But, with each additional credit card, the improvement in your debt utilization ratio will become less and less significant.
Having more credit cards means that you’ll be able to incur more debt. For many people, it’s a test of willpower to not go on a massive spending spree.
Furthermore, more credit cards will require more upkeep. Credit card issuers have been known to reduce credit limits and/or close accounts have have been inactive for long periods of time. Both actions will cause a drop to your credit score. Many credit cardholders take on the chore of making small card purchases every few months to keep their accounts active.
This may sound like a vague answer, but you should own as many credit cards as you’re able to handle without putting yourself in any financial harm.
Some consumers like to have a combination of cash back, travel and low-interest credit cards. Others will simply stick to a good mix of cash back credit cards or rewards credit cards. Whatever they do, they make a note of paying off the balance every month.