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What’s the right amount of credit cards to own? This is a very common question and unfortunately there’s no right answer. There is no number that means the difference between great credit and a life of debt. On average, however, United States cardholders have between 5 and 10 credit cards, although some people have up to 40.
Right now you may be looking at a large stack of credit cards and thinking you simply must have too many. Or maybe you only have one credit card and you’re thinking that’s not enough. While there is no one-size-fits-all number when it comes to credit cards there are a number of things you should look at when pondering this question.
First, to decide if you have too many credit cards take a good look at your debt-to-income ratio. Determining this number is easy. Simply divide your monthly debt spending by your monthly income and multiply this number by 100. This gives you the percentage of your income that goes to paying debt. You may also try seeing how much you’d be paying if all of your credit cards were maxed out. This number is very important to lenders, as well as your credit.
Next, look at your card utilization. If this number is too high you probably have too many credit cards. To determine your card utilization, which makes up 30% of your credit score, divide your total debt by your total credit. Your card utilization should be below 30%, although lower is generally better.
You should also make sure you have a healthy mix of credit types. Having only credit card accounts–or too many–can quickly bring down your credit rating. If you have a car loan, student loans and a mortgage you can probably handle more credit cards than someone that only has credit card accounts. While the types of credit you have only make up 10% of your credit score it’s still an important aspect to look at when determining if you have too many credit cards.
If you’re just beginning to build your credit or are working on rebuilding it, stick with one or two credit cards at the most. This will allow you to build a good credit history with these accounts and prove your responsibility before taking on new credit. Large amounts of credit cards also look much worse for an individual with poor or limited credit and will have a much bigger impact on them than someone with excellent credit.
In general, two to five credit cards will serve you well. Many people choose to have one credit card for emergencies and another for earning rewards, although the choice is up to you. If you want to get a new credit card for rewards make sure it’s worth it to you and makes sense for your spending habits. Stick with one rewards card to avoid having too manyunnecessary credit cards. Use this calculator to decide if a cash back credit card will work well for you. As long as you’re able to pay off your balance each month and avoid overspending you probably have a good number of credit cards. Here’s a thought, however, about opening new credit cards all the time. If you don’t need the credit card or won’t use it often, don’t open it. Also, don’t go for credit cards that have annual fees unless the card has a number of benefits that you will take advantage of frequently. After that, the number of credit cards you should have is based on your personal spending habits and the level of responsibility you possess.