How Many Credit Cards Do I Need

by John_S on December 30, 2010

There is no clear cut answer on the question how many cards do you need. In view of credit score, the number of cards you have does not matter much. It is the way you manage your debt that determines how low or how high your credit standing can get. However, it is wise to have more than one credit card in view of the unstable situation on the global financial markets.

How to Assess the Number of Cards I Need

When it comes to the number of credit cards you need, the first issue to consider is the amount of debt you can handle. On the good side, having multiple cards allows you to extend your credit limit. Say, for example, that one card comes with a limit of $5000, another with $1000, and a third one with $2000. Your total credit limit goes up to $8000 per month. That means you can make more purchases (or buy more expensive items) as long as you can pay them off on time.

Another point to consider when making purchases is credit utilization ratio (which is a value arrived at by dividing the total debt by the total credit limit). For example, if the total limit stands at $8000, and your debt is $2000, your credit utilization ratio stands at 25 percent. This number reads as a good job, as values below 30 percent are recommended for credit utilization. Put another way, the higher credit limit you have, the lower the utilization value becomes. There is a catch, however. The number of credit cards you use may make you overspend, and credit utilization will go up, resulting in more debt than you can handle. Therefore, it is better to get rid of a credit card or two to resist the temptation.

Mix of Credit

A factor that impacts your credit score is the mix of credit you have. If you dispose of more than one credit card but no other accounts, your credit score might be affected to some extent (not much though). While a good mix proves that you have experience with different types of credit, it is only about 10 percent of your credit score.

Handling Your Credit Card Debt

There are three basic ways to manage your credit card debt and maintain a high FICO score. One is to make your payments on time. Second, you have to keep all credit card balances low. And third, use your credit card responsibly and in times of need. Teenagers tend to make impulsive purchases, you shouldn’t (especially if you have a family to take care of). Even if you have a couple of credit cards, you won’t get in financial trouble as long as you meet the three conditions above.

Why Use Multiple Cards

Having more than one card is beneficial in many ways. If one credit card gets stolen or lost, you can use one of the other cards in the meantime. Sometimes, banks limit your access to credit card funding for security purposes. When this happens, your utilization ratio will increase, affecting your credit card score. When you dispose of more cards, the ratio is still affected, but not as much.

When it comes to handling credit cards, the number does not really matter. Responsible financial behavior and using cash for shopping (most of the time) stand for the best budgeting strategies.

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