How Many Credit Cards is the Right Amount?

When building or maintaining a credit score, people often ask what is the best way? There are several factors that affect your credit score: payment history, amounts owed, credit mix, etc. Credit cards are the easiest and most accessible way to influence your credit score.

Unfortunately, there isn’t a rule of the amount of credit cards one should have; someone who has 5 credit cards can have better credit than someone with 2 credit cards, and vice versa. The main goal for building or maintaining your credit score is to have a strong diverse credit bureau. This can be achieved by multiple open accounts, including credit cards (if they are kept in good standing).

Guidelines for having multiple credit cards:

Don’t open too many at once. Every credit card application pulls a hard hit on your credit and lowers your overall score. It is often seen as risky behaviour when you open multiple accounts at once. The best suggestion is to build your collection of credit cards over time. This shows that you have successfully managed the money you have been offered and are at less risk for defaulting on new loans.

Keep your accounts in good standing. It goes without saying that you need to make regular minimum payments on your accounts to maintain and build your score. Lenders would rather see few credit cards with a good payment history verse someone with multiple credit cards they cannot financially manage.

Lower your utilization ratio. The utilization ratio refers to the amount of available credit to the total credit used. Lenders want to see a lower ratio when offering customers new loans. There are multiple ways to lower your utilization ratio. The best way is to pay off your debts. But, if that is not possible right away, you can also spread your existing debt over multiple credit cards. Here is a scenario:

Person A has a $1000 credit card with a $900 balance.

Person B has 3 $1000 credit cards each with a $300 balance.

Even though they both have they same total amount of outstanding debt, Person B has a much lower utilization ratio at 30% than Person A at 90%.

Increase the diversity. Having multiple credit cards can increase the credit mix of your bureau. A diverse credit bureau provides lenders with additional data about your spending habits and payment history. All factors that can also impact your credit score.

Credit cards are an easy and accessible way to improve your credit score, without having to increase your overall debt. The ‘right amount’ of credit cards depends largely on an individual’s spending habits and their financial needs. Understanding how credit works will help you utilize the accessible tools to build and maintain a good credit score.