How Many Credit Cards Should You Really Have?

right number of credit cards

One of the most hotly debated questions regarding consumer credit is what’s the "right" number of credit cards you should have. You don’t hear debates about the right number of mortgages or home equity loans, likely because you’d rarely have more than one at any given time. Having written that, there is always a certain segment who believes that zero credit cards is the best decision. Others may tell you that "X" is the right number, and X varies wildly.

To earn better credit scores, it is important to make sure that your aggregate utilization ratio on all of your credit cards combined remains low on your credit reports.

The truth is the exact number of credit card accounts you have is not all that important from a credit scoring perspective. What is immensely influential to your credit scores, however, is how you manage your credit card accounts, despite the volume. This influence is real whether you have 1 or 20.

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A Credit Number That Actually Matters

One of the most important metrics in both your FICO and VantageScore credit scores is called revolving utilization or your debt-to-credit limit ratio, which are the same thing. Both of these terms describe the relationship between your credit card limits and your credit card balances appearing on your credit reports.

You calculate revolving utilization on an individual account by taking your credit card balance, dividing it by the account limit, and multiplying the figure by 100. For example, if you have a credit card with a $10,000 limit and your balance is $5,000 then your revolving utilization ratio is 50 percent ($5,000 Balance ÷ $10,000 Limit = 0.5 X 100 = 50%).

When More Available Credit May Be Helpful

To earn better credit scores, it is important to make sure that your aggregate utilization ratio on all of your credit cards combined remains low on your credit reports. Less than 10 percent should be your target. The more available credit you have, the easier it is to hit that target. If you only have a few, low-limit credit card accounts it may be challenging or impossible to maintain a low utilization ratio. Here are two examples that demonstrate why more credit cards can be helpful.

Example 1: Two Credit Card Accounts

  • ABC Bank: $500 Limit / $300 Balance
  • XYZ Bank: $500 Limit / $500 Balance
  • Aggregate Revolving Utilization Ratio: 80 percent ($800 Total Balance ÷ $1,000 Total Limit = 0.8 X 100 = 80 percent)

Example 2: Five Credit Card Accounts

  • ABC Bank: $500 Limit / $300 Balance
  • XYZ Bank: $500 Limit / $500 Balance
  • QRS Bank: $1,000 Limit / $0 Balance
  • First Bank of Wonderland: $4,000 Limit / $0 Balance
  • John's Bank: $10,000 Limit / $0 Balance
  • Aggregate Revolving Utilization Ratio: 5 percent ($800 Total Balance ÷ $16,000 Total Limit = 0.05 X 100 = 5 percent)

In both examples, the aggregate balance on the credit report remains the same at $800. However, in Example #2 the aggregate revolving utilization is considerably lower because the available credit was much higher. And why was the available credit much higher? Because you had more credit cards and no additional debt. More was better than fewer.

The number of credit cards is also not problematic for mortgage loan applications so you’re not going to find yourself having a more difficult time buying a house simply because you have a larger number of credit cards. The exception is if you have balances on a larger number of credit cards. Not only will more balances lead to lower credit scores but it will also increase your debt-to-income ratio, which means you’ll be able to borrow less money and may not be able to qualify for a large enough loan to buy that house or your dreams.