How Many Credit Cards Is Too Many?

You may be wondering how many credit cards you should have. Here, we'll cover whether it's possible to have "too many" cards, how multiple credit cards may impact your FICO® Score, and how to discover the balance between the perfect number of cards and excellent credit.

How many credit cards is too many?

If you've been around for a while, you likely know how easy it can be to open a new credit card. A credit card company sends a letter saying something along the lines of, "Congratulations! You're qualified for a new (fill in the blank) credit card." Maybe the card includes a perk, like a balance transfer or free identity theft protection, and you're intrigued. Before logging onto the website provided by the credit card issuer or calling a toll-free number to follow up on the credit card offer, take a quick look at the accounts you already have open.

No magic number

There is no magic number of credit cards a person should have. What matters is how you manage the cards in your possession. For example, a person might have one credit card but mismanage it by skipping monthly payments or making partial payments. Another could have 10 credit cards but never misses a payment, keeps their credit utilization low (more on this in a moment), and is rewarded by having a high FICO® Score.

Mix matters

When a credit bureau calculates your credit score, it does so by gathering different bits and pieces of your credit history and breaking it all down into five different categories. The one that matters here is called "credit mix," and it's worth 10% of your total credit score. Credit mix refers to how much access you have to different types of credit. For example, your credit score is likely to benefit more if you have a mix of revolving credit (like credit cards) and an installment loan (like an auto loan or home mortgage). Having a mix of loan types allows a credit bureau to see how well you manage different types of debt.

Utilization ratio matters

Credit cards can play a large role in another FICO® Score category called "amounts owed." Amounts owed is worth 30% of your total credit score and takes into account how much you owe in relation to how much available credit you have. This is called your credit utilization ratio (or credit utilization rate).

Let's say you have three different credit cards, each with a spending limit of $5,000. That means you have access to $15,000 in credit if needed. Imagine that two of those cards are maxed out and you owe $10,000. If the only credit you carry is on credit cards, that would mean that your credit utilization ratio is almost 67% ($10,000 ÷ $15,000 = 0.6666, or 66.66%). Ideally, the aim is to keep your utilization ratio at 30% or lower. The lower your utilization rate, the better your credit score.

Now, say you apply for an additional credit card with a credit limit of $10,000. If approved, your total available credit jumps from $15,000 to $25,000. And as long as you don't charge anything to the new card, your credit utilization rate drops to 40% ($10,000 ÷ $25,000 = 0.400, or 40%).

Length of credit history matters

Before you mentally calculate how much your utilization ratio would drop if you were approved for more credit cards, consider this:

Anytime you take on new credit, it impacts your credit score. That's because of another one of the five FICO categories, called "length of credit history." Length of credit history amounts to 15% of your total credit score and is figured by averaging the age of your oldest credit accounts and new credit. Each time you take on new credit, the overall length of credit comes down. Depending on how old your oldest account is, this may not impact your credit score much, but it's an important thing to keep in mind before applying for new credit.

New credit matters

One more FICO category we haven't discussed is "new credit." As the name implies, new credit applies to credit you've taken out recently, and it makes up 10% of your credit score. Research shows that people who open several credit accounts in a short period of time are at a greater risk of default, and that naturally makes creditors nervous. If you are going to open another credit card account, your credit report may be temporarily dinged a bit.

Whether it's a name brand or store card, make all payments on time. A single late payment can stay on your credit report for up to seven years as part of your overall payment history.

What will happen if I close a card?

Let's say you're frustrated because you're in credit card debt or you're tired of paying an annual fee on a card. While your instinct may be to cancel the cards that cost you the most money, you may want to resist the urge. Some of those same FICO® Score categories that are impacted when you take out new credit are also impacted by closing a card.

Credit utilization ratio and canceling a card

Let's look back at the first scenario, the one where you have three credit cards, each with a credit limit of $5,000. That's $15,000 in available credit. Imagine that you owe $3,500 on one of the cards, but nothing on the other two. That would give you a credit utilization ratio of 23%, below the ideal 30% debt ratio. Canceling one of the credit cards immediately drops your available credit from $15,000 to $10,000. Suddenly, you have a credit ratio of 35% ($3,500 ÷ $10,000 = 35%). Now your debt ratio has crept up over 30% simply because you closed a credit card account.

An alternative option would be to pay off the card with a balance and leave all three credit card accounts open. Doing so would drop your credit utilization rate to 0%.

Length of credit history and canceling a card

If the card you close is one of your older cards, there will be a change to the length of credit portion of your FICO® Score, and you can expect a slight drop in your overall score.

Credit mix and canceling a card

Finally, if the card you decide to close is the only card you own, your credit mix will be altered. Let's say you have a mortgage, auto payment, and a single credit card. Canceling the credit card leaves you with only installment payments, a fact that may impact your credit score.

What's best for you

No one can tell you what's best in your situation. For example, if you're deeply in debt and don't trust yourself not to use a card, you may need to consider closing the account to give yourself space to dig out of debt. The good news is, there are steps you can take to close an account while minimizing the impact on your credit score.

The bottom line is this: There's no right number of credit cards, used or unused. As long as you can manage the number of cards currently in your possession, you will be fine. That said, unless you find a rewards card with benefits you can't live without, there's no reason to open a new credit card, particularly if you're already juggling several others.

Still have questions?

Here are some other questions we've answered:

• Should You Close an Unused Credit Card?
• Is Your Credit Card Annual Fee Worth It?
• How to Manage Multiple Credit Cards