Credit cards are almost too easy to get today. It seems every time you open your mailbox, your email, or shop online or in-store, someone is offering you a credit card. Whether it’s your favorite retailer, airline, or gas station – there’s a credit card for that!
But how many credit cards should you really have? The answer may not be as straightforward as you expect. Everyone’s financial situation is different, and the number of cards you carry and how you use them may impact your credit standing in ways you don’t realize. However, you can reap significant financial benefits by understanding and managing your credit cards effectively.
Understanding Credit Cards & Credit Utilization Ratio
First and foremost, it’s essential to understand that credit cards are loans. Although they are easy to get and rewards programs can encourage their use, they can cause severe financial harm if not used responsibly. Having multiple cards can quickly put you in a financial bind, as many credit cards – especially store-sponsored cards – have extremely high interest rates. The number of credit cards you have open, and their balances can tremendously impact your credit, including your credit utilization ratio.
Your credit utilization ratio (CUR) is a figure that lenders use to instantly evaluate how well you manage credit. This ratio includes your credit card balances and any revolving credit lines you may have, like a Home Equity Line of Credit (HELOC).
Your CUR is expressed as a percentage and measures your outstanding credit balances versus the total amount of credit available to you. In simpler terms, how much of your available credit you are currently “utilizing.”
CUR = Total Outstanding Credit Card Balances ÷ Total Credit Limits x 100
Having more credit cards can increase your total credit limits, giving you a more favorable CUR. However, several credit cards in your wallet might cause you to spend more. So, there’s a fine line between how many cards you should keep. Ideally, you want a CUR that is below 30%. For example, if you have a credit card with a $10,000 credit limit, you should aim to keep your balance below $3,000.
Active vs. Inactive Cards
Your credit cards may fall into different classifications depending on your level of usage. Identify which of your credit cards are considered active and which are inactive.
- Active Card: A credit card that you utilize on a regular basis. You pull this out of your wallet frequently when making purchases.
- Inactive Card: A credit card that you use rarely, if ever. It may be one that you’ve paid off and haven’t touched again since or one that you only use once in a blue moon to keep the account from being closed.
Even if you have a few cards that fall into the inactive category, keeping those accounts open is still beneficial to your credit score. If they have a low or even a $0 balance, it can improve your credit utilization ratio (CUR) and credit score to keep them open.
How Many Cards is the Right Number?
Unfortunately, there is no magic number for how many credit cards to have in your name. Everyone’s financial situation is unique. However, it’s always wise to at least have two credit cards. If one card is lost, stolen, or isn’t working, you have a backup.
Most financial advisors suggest keeping up to three credit cards. Any more than that, it can become difficult to manage balances and payment dates, and the temptation to spend rises.
When deciding how many cards you should have, consider the following:
- Rewards Cards: It’s always fun to earn rewards. However, these cards also typically have the highest interest rates, especially store-sponsored cards. If you are confident that you can repay your outstanding balance in full monthly, these cards are an excellent way to earn perks. However, if you cannot repay the balance entirely, opt for a low-rate card.
- Low-Rate Cards: Never forget that credit cards are loans. With any loan where you pay interest, you always want the lowest rate possible. If you cannot pay your entire balance off monthly, use your lowest rate card. Constantly work to boost your credit score to lock in the best rates.
Strategies for Successfully Managing Credit Cards
Follow these tips to ensure effective usage of your cards:
- Keep Inactive Cards Open: Keeping inactive cards open can improve your credit utilization ratio and credit score. Most credit cards will be closed if they aren’t used for a specific time. You can keep them active by using them to fill up your gas tank or make a small purchase that you can pay off immediately every few months.
- Know Your Rates: Review the interest rates on all your credit cards and determine which card has the lowest rate. Any time you need to carry a balance on your credit card, use the one with the lowest interest rate.
- Work Your Rewards: Many credit cards offer access to a rewards program. Familiarize yourself with the specific benefits your cards provide so you can make the most of your rewards. Just remember, rewards cards typically have the highest interest rates. So, if you cannot repay the balance in full each month, steer clear of these cards.
Is a Balance Transfer Right for You?
If you fear you have too many credit cards and want to reduce your debt, a credit card balance transfer may be the solution for you. Balance transfers offer many financial benefits, including:
- Easier Debt Management: Having several credit cards makes it difficult to juggle various balances and payment dates. By consolidating your balances into one credit card, you’ll have a much easier time managing your debt.
- Pay Less Interest: Transferring balances from multiple credit cards to a singular lower-rate card allows you to significantly decrease the interest you pay each month.
- Streamline Your Debt Repayment: By moving your debt onto one card with a low interest rate and one singular monthly payment, you can enjoy the simplicity of a streamlined debt repayment plan. Just focus on one payment and watch your debt decrease before you know it!
We’re Here to Help!
While there is no clear-cut answer to how many credit cards you should have in your wallet, fewer is always better. When you have too many cards, losing track of payment dates and balances becomes easy, and the temptation to spend rises.
If you’re interested in learning more about our low-rate credit cards or want to consolidate debt and reduce your number of cards, we’re prepared to help. Please stop by any of our convenient branch locations or call 800-782-4899 to speak with a team member today.
Each individual’s financial situation is unique and readers are encouraged to contact the Credit Union when seeking financial advice on the products and services discussed. This article is for educational purposes only; the authors assume no legal responsibility for the completeness or accuracy of the contents.