How many credit cards should you have? Will you be penalized for applying for another credit card? The answers to these questions are a frustrating “it depends” and “not necessarily.”
First, it depends on how disciplined you are in spending money and managing your payments. These are important considerations not only for your comfort and financial well-being, but also for the agencies that are monitoring your credit and constructing your FICO score.
Read on to find out whether it makes sense for you to have more than one credit card.
Many people can successfully manage multiple cards. The Credit Karma website says that its members with a credit score of 800 or higher—the top scores—have an average of seven cards. Those whose credit score is in the next level down, 700-799, have an average of six. The typical American consumer has three or four cards on average.
Having more cards can improve your credit score because an important component is the so-called “credit utilization,” or how much of your available credit is being used. The more credit you have and the less of it you use, the higher your score will tend to be. Having just one or two cards may mean your credit utilization is relatively high, and that weighs on your score. (Keep in mind that activity on your debit card, even if it carries a Visa or MasterCard logo, does not impact your credit history or score.)
Applying for a new credit card, as most people know, entails a “hard inquiry” of your credit score. That in and of itself can lead to a small dip in the score. However, this is more than compensated for over the long run by the benefits of maintaining higher credit. However you shouldn’t significantly increase the number of cards you have in a short period of time. Rather, space out each application by at least several months. And don’t continue applying for new cards if you’re getting rejected.
3 good reasons to get a new credit card
- Having more than one card increases the credit you have available and will lower your credit utilization in a favorable way if you maintain your good spending habits and pay off your balances (or keep them low).
- The diversity of credit providers counts in your favor. Having various kinds of cards with a good record of payments tells prospective lenders that you have been vetted and considered creditworthy by several institutions. You should have a good reason for getting each card—because of its rewards program, cash back, affinity, bonus awards—but avoid running up purchases simply to accumulate rewards.
- You can use different cards for different purposes. You could use a card from your community bank or credit union for daily purchases, an airline rewards card for large purchases that earn lots of points, a card for business expenses, just to name a few. You want to keep each card active enough to stop the issuer from reducing credit or closing the account.
Before closing a credit card account, keep in mind that it will lower your available credit and may raise your credit utilization, with possible negative consequences for your credit score.
Keeping payments current is important, as is checking statements carefully (easier when everything is online), keeping balances low—and limiting the number of accounts to however many you can manage in this way.