You may sift through your stack of credit cards and wonder if you have too many. Or, if you're considering opening new credit accounts, you want to be sure it won't affect your credit before doing so. The best number of credit cards is one of those questions that doesn't have a one-size-fits-all type of answer.
The credit scoring calculation looks at the number of credit cards you have, but in comparison with other information on your credit report. The best number of credit cards depends on your ability to manage your debt and credit card payments.You can tell if you have too many credit cards by the effect on your credit.
Is Your Debt-To-Income Ratio High?
When lenders evaluate your loan application, they consider available credit as an opportunity for debt. They may figure your debt-to-income ratio as if your credit cards were totally maxed out to gauge you at your riskiest debt level possible.
You can do a similar calculation. If you maxed out your credit cards what would your debt-to-income ratio look like? Would it rise above 37%? If so, you should think about closing some of your unused credit card accounts.
Is Your Credit Utilization High
Your credit utilization (30% of your credit score) is your total debt divided by your total credit. So, for example, if your credit card limits total $5000 and your credit card balances total $2000, then your credit utilization is 40%. Ideally, your credit utilization should be less than 30%.
The more credit cards you have, the more temptation you have to charge purchases. As your credit card balances increase, your credit utilization goes up. So, one way to keep your credit utilization down is to keep your number of credit cards and balances down.
Is Your Mix Of Credit Healthy?
Mix of credit is another credit score factor that involves the number of credit cards you have. The credit score calculation looks at all the types of accounts you have in your credit file to determine how much experience you have with different kinds of credit accounts. If you have several credit cards, but no other types of accounts, your credit score could be affected, but not likely by much. After all, mix of credit is only 10% of your credit score.
Do You Have Difficulty Managing Credit Cards?
The more credit cards you have and actively use, the harder it will be to manage your payments. You need to have the ability to track your credit cards, including payment due dates, interest rates, fees, and charges you've made. This is easier with just a few credit cards – like one to three – but becomes increasingly difficult as the number of credit cards exceeds five. Still, it depends on your own ability to manage your credit cards.
You can use an online tool like TrackCards to help manage your credit card payments.
Do I Have Too Many Cards
If you're just starting out with credit or rebuilding your credit, one credit card is enough. You need successful experience managing a credit card before taking on additional credit responsibilities. As you get that successful experience and consider opening additional credit cards, think about your ability to pay and track your credit cards.
Before you close any credit cards, first make sure the cards you close won't hurt your credit score.