How Many Credit Cards Should I have?

Too much credit is as bad as no credit at all. This is what we usually say in the banking industry. If you have too many credit cards in your wallet, it could hurt your credit score or worse, hurt your balance sheet when it comes time to pay them off! However, if you have only one card, it could hurt it as well… Are credit cards good for your credit score? Actually, they are!

A few reasons to avoid having too many credit cards

Most people tend to think that credit cards were created with an evil purpose in mind (even more evil than the one who created unsecured personal loans 😉 ); forcing you to spend more than you can afford and causing you to pay extorsionist interest rates to greedy financial companies in return (mwahahaha!).

Paying with a credit card is like buying goods with “virtual” money for some people. Since they don’t actually take the dollars from their pocket, they feel like they didn’t spend any money… until they get their bill!

Besides temptation, I can’t really say why it would be bad to have more than one credit card. I actually believe that you are better off taming the beast once and for all and learn how to use a credit card responsively.

What is the magic number then?

When people ask me how many credit cards they should have, I tend to answer 3 to 4. Why so many? The very first reason is to have a credit card per company: In my wallet, I have a Mastercard, a Visa and an Amex. While I always use my Mastercard (this is the one that gives me the most points and warranty extension), it sometimes happen that a merchant doesn’t accept it. This is why having credit cards from different companies can be an asset.

The second reason to have more than 1 credit card in your wallet is to protect myself from fraud. If my main card is cloned, it will be cancelled right away by the company and I will receive my new Mastercard in about 10 days. If I’m on vacation during that time, it could be quite a pain to wait 10 days without a credit card. This is when I would use my other cards in the meantime.

The third reason to have 3 to 4 credit cards in your wallet is less known by the public: This will help you build a stronger credit score. One of the key points while calculating your FICO score is the balance of your outstanding debts versus your authorized limits. Take a look at this example:

John has only 1 credit card with a maximum limit of $1,000. He has made a few purchases on the card and his balance is $800. Therefore, his debt utilisation ratio is 80%.

Mary has 4 credit cards of $1,000 limit each and only used the first one. With the same balance of $800, her debt utilisation ratio is down to 20%.

Mary will end-up having a stronger credit score than John because according to the FICO score calculation method, she is far from being maxed out. The theory is that she is better able to manage her credit in a more responsible manner. Interesting isn’t it?

So which credit cards do I need?

I think you should select one credit card that gives rewards points or cash back while the other 2 or 3 should be no fee cards without many incentives. You only have to use the first one and forget about the others. They won’t cost you a thing but they can be useful to build a strong credit history and protect you in case of fraud.