How Many Credit Cards Do I Need?

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Your first credit card likely accomplished two goals. First, it paid for purchases without immediately affecting how much cash was in your bank account. Second, it was the beginning of building your credit history. But now you're probably wondering, "How many credit accounts do I need to strengthen and maintain good credit? Is one too few? Are five too many?"

Discover the answers to these, and other key points you should know, before you apply for your next credit card.

Benefits of Owning Multiple Credit Cards

Zero percent balance transfers, low introductory interest rates, and hefty sign-on bonuses all work to entice you to apply for that next credit card offer. If those benefits weren't enough to sway you, keep in mind that you could also:

  • Earn rewards faster. When you're selective about which card you use for purchases, you could maximize earnings by category. For example, use the card that offers higher rewards for gasoline purchases each time you fill up your tank.
  • Improve your credit score. Opening a new credit account could help your score since it increases your overall credit limit and could lower your credit utilization rate, a major component of credit scoring calculations.
  • Ensure you're always prepared. Not every retailer accepts every credit card. For example, your favorite department store may not take American Express®, but they likely accept Visa®. If you are traveling and your card is declined, you will be glad you have a backup.

Will Too Many Credit Cards Lower My Credit Score?

The short answer is no. If you pay all of your bills on time and don't carry a balance, your report won't reflect negative marks based solely on how many cards you have. However, too few credit accounts could harm your score. According to Experian, less than four credit accounts could result in a thin credit file making it harder for credit scoring agencies to calculate a score due to the limited data.

How Do Multiple Credit Cards Affect Credit Scores?

Credit scoring agencies use the information in credit history reports to calculate an overall score. For example, FICO® Scores focus on Payment History, Amounts Owed, Length of Credit History, New Credit, and Credit Mix. The first two components, Payment History and Amounts Owed, are heavily affected by how many accounts you have and their activity.

Payment History looks at how consistently you make payments on time each month across all accounts, while Amounts Owed considers how much you owe as a percentage of your total available lines of credit. So, if you can't manage the payments on multiple cards or carry a high balance on your cards, expect lower scores.

Are There Drawbacks to Owning Multiple Cards?

A wallet full of varied credit cards allows for greater flexibility when it's time to make a purchase and could give your credit score a boost. But there are drawbacks you might encounter if you add another card to your financial toolkit.

  • Frequent applications could lower your credit score. If you're chasing balance transfer offers every other month, slow down. Applying for new credit cards results in hard inquiries on your credit report. Multiple inquiries within a short period of time could lower your credit score, making it difficult to get approved for low-interest rate auto loans or mortgages.

    Many lenders use your credit score as part of their criteria when deciding what interest rate to offer you. As a result, multiple inquiries in a short period of time could mean you'll get stuck with an interest rate higher than someone with fewer accounts reporting only one inquiry.
  • Various terms and conditions could be costly. Credit card issuers set interest rates, spending limits, and late fee structures. You’ll have to keep up with each account’s various terms and conditions if you have multiple cards. Otherwise, you could be hit with fees for missing a due date or exceeding your spending limits.

    But if you know your limits and pay balances off by the due dates each month, multiple accounts shouldn’t harm your credit score.

Focus on making the most of the credit lines you have by paying them on time and keeping balances low. Before you open another account, consider how it fits into your overall financial management plan.