The average American has 2.6 credit cards at any given time.
Is that too many? Is it not enough? What’s the magic number?
Many people looking to build their credit ask the same question, “How many credit cards should I have?”
The answer to the question is this: “We don’t know.” There’s no hard and fast number available. Instead, the answer to your question depends on your personal credit history. After all, it is the right mix of credit products and a long credit history that help improve your credit score.
Are you starting your new life as a credit card holder and wondering what comes next? Here’s what you need to know.
How Do Credit Cards Impact My Credit Score?
No one knows how the credit bureaus calculate credit scores. All three major bureaus keep their algorithm top-secret. However, FICO allows us to make an educated guess.
FICO says that five types of data impact your credit score, and each is weighted.
The mix includes:
- Payment history (35 percent)
- Credit utilization (amount owed (30 percent)
- Length of credit history (15 percent)
- New credit applications (10 percent)
- Credit mix (10 percent)
At the same time, these categories mean more or less to different people, especially when you’re starting on your credit journey. They become more evenly weighted when you have a longer (and positive) history.
This is, in part, why there’s no magic number of credit cards to have. If you have seven credit cards, but you miss payments and owe money on all of them, those cards may not be serving you. At the same time, if you have seven credit cards and use them regularly but keep the revolving balances below 30 percent and never miss a payment, they can add to your credit score.
These are the two factors that weigh most heavily on your score and your ability to access new credit.
But you can also play around with the other categories: credit mix and new credit.
What Does FICO Mean by Credit Mix?
Your “credit mix” makes up 10 percent of your FICO score. But what does it mean?
The credit bureaus look for different types of credit products. It considers:
- Credit cards
- Installment loans
- Mortgage loans
- Guaranteed approval loans
- Finance company accounts
- Retail accounts
In FICO’s view, a healthy borrower uses various kinds of accounts. You shouldn’t have only one type of account. For example, a personal loan alone won’t send your credit skyrocketing to Excellent.
Within the category, it also considers:
- The types of accounts you have
- The number of accounts you have
- How you manage your cards
- How often you close your accounts
However, it’s unclear how each of those criteria plays into your overall score.
What Does FICO Mean by New Credit?
By “new credit,” FICO refers to how often you ask for a new loan or credit card.
Shouldn’t applying for new products hurt you? After all, doesn’t asking for more debt mean that you’re not managing your money well?
The answer to this is confusing. On the one hand, applying for a new credit card each year or applying for a mortgage is a smart thing to do. It shows you have an interest in interacting with the credit system and enjoying new benefits. Qualifying for new products also shows that you’re responsible.
However, if you open too many accounts too rapidly, then your score can take a hit. Applying for six new credit cards in six months hurts you, especially if you have no credit, or you only recently achieved a credit score that allows you to apply for loans.
In this case, shopping for new credit cards signals that you are a high-risk borrower.
What about a mortgage or an auto loan? Doesn’t that hurt your score?
Don’t worry. Inquiries that come from multiple mortgage or auto lenders don’t count the same way. Credit bureaus understand that you might seek pre-approval from at least two sources to find the best rates. So, FICO treats it like a single inquiry rather than numerous hits.
How Many Credit Cards Should I Have to Improve My Credit Score?
By now, you know that the number of credit cards guaranteed to boost your credit is…well, no one knows. There’s no ideal number of accounts to have, and the sheer number of cards you have may not even impact your credit score in a meaningful way.
Instead of focusing on getting the right number of cards, it’s more helpful to consider them in the context of a strategy.
If you have no or low credit, consider following these steps to work your way up the ladder.
Start with One or Two Credit Cards
Based on what we know about credit cards and credit scores, you need a few revolving credit lines, but you don’t want to ask for too many.
So start with your first credit card and work your way up.
Getting your first credit card is perhaps the toughest part of the whole process. Lenders don’t like to approve people without a credit history. However, you still have options like secured credit cards.
A secured credit card is similar to a secured loan (like your car loan). It uses collateral to grant you credit. In this case, you use a cash deposit on the card.
Secured credit cards do show up on your credit report, which helps you establish or build credit as long as you use them responsibly.
Once you use a secured credit card for six months, you may then be able to apply for another credit card – this time without the security.
Use these two cards for a year (without applying for others) to demonstrate your creditworthiness. Doing so will open up an exciting new world: the realm of credit card rewards.
Replace Your Starter Cards with Better Rewards
When you improve your credit, you unlock access to credit cards that offer more benefits than being able to borrow money.
Cards that offer rewards like cash back and travel perks require credit to qualify for, but they often come with higher revolving balances.
Choose your reward card carefully. They do come with fees and interest rates that can eat into their benefits if you don’t use them enough, or the rewards aren’t pertinent to you.
A card provider that offers points that you can transfer or a superior cashback rate tends to be the best option.
Again, don’t get overzealous. Apply for one or two based on your research.
Don’t get rid of your starter credit cards when you get new ones – and don’t stop using them either. Delegate small purchases to your old cards (even a Netflix subscription or a tank of gas counts) and pay them off in full every month.
Then, use your rewards card for the bulk of your credit card purchases.
Remember: a bigger limit isn’t a license to spend more. Spend what you can afford to pay off each month when possible. For example, only spend what you earn, and make payments every two weeks instead of every month to make sure you use it responsibly.
Ask for Credit Limit Increases
Now that you have a few credit cards and use them responsibly, you can ask for a credit limit increase on your card.
An increase offers two benefits. First, it lowers your credit utilization ratio automatically without any extra payments. Second, you have more revolving credit without adding a whole new account into the mix.
You can ask for these increases on your starter cards first and then on your newer rewards cards.
Open as Many Credit Card Accounts As You Can Use Responsibly
With two to four credit cards under your belt, you now have a solid foundation to help you climb your way to Excellent credit.
You can open more accounts if you want, but it’s not necessary.
A strategy is still essential. New accounts could leave your old accounts dormant, which won’t do anything for your credit. A new card also opens up an opportunity for overspending. It’s better to have only a few credit cards and use them responsibly than to add an additional one or two products only to max them out and struggle to pay them back.
What’s Your Credit Strategy?
How many credit cards should I have? It’s a common question in part because there’s no answer.
A better understanding of your credit score – including your strengths and weaknesses – can help you find an answer for yourself. However, no matter what your credit looks like, you should only have as many cards as you can take responsibility for.
It’s better to have two cards and use them well than to have four cards and feel out of control.
Are you looking to start your journey towards responsible credit card use? Explore our site to learn more about how to get your first credit card.