How Many Credit Cards Is Too Many?

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The average American has 2.6 credit cards in their name, but individuals with the highest credit scores have seven credit cards on average, according to FICO data. This leaves many people thinking that it's better to own a lot of cards. After all, if you can handle several credit accounts responsibly, won't that increase your appeal to lenders?

While this can be true, having a bunch of credit cards can also lower your credit score, especially if you've opened several of them recently. Plus, if you start spending too much, you could find yourself buried under a mountain of credit card debt.

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Let's go over the pros and the cons of having many credit cards so that you can decide whether you want to add another to your wallet.

How having many credit cards can help you

The obvious benefit of signing up for multiple credit cards is the increased opportunity to earn rewards. If you diversify your cards well and use each one strategically, you can earn more rewards than you would if you had a single credit card. For example, one card may get you lots of cash back on fuel purchases, while another might reward you generously at the grocery store, and yet another might offer unbeatable rewards when you shop at your favorite retailer.

When it comes to your credit score, however, the benefit of more cards is the impact on your credit utilization ratio. This a measure of how much credit you're using compared to how much you're entitled to. Most experts recommend keeping your credit utilization ratio at 30% or less in order to keep your credit score high. Exceeding this amount could cause your score to dip. For example, if your available credit between all your cards is $30,000, then your total balance should not exceed $10,000 (and the lower, the better).

Having multiple credit cards will increase the amount of credit available to you, so if your spending stays the same, your credit utilization ratio will go down.

How having many credit cards can hurt you

It's been proven that people spend more money when using a credit card than when using cash. If you have multiple credit cards available to you, and you're trying to rack up as many rewards points as possible, you may end up spending more than you mean to. This could lead you to carry a balance from one month to the next and get charged so much interest that you can't keep up with the payments. Payment history is the single most important factor in determining your credit score, and even a single late payment can drop your score by over 100 points.

Opening a bunch of new credit cards will also shorten the average age of your credit accounts, which is another factor in determining your credit score. Plus, every time you apply for a new card, the card issuer will pull a hard inquiry on your credit report to see if you qualify. These inquiries cause your credit score to take a slight hit -- usually just a couple of points -- but the effect is compounded if you apply for new credit regularly.

Should you apply for a new card or cancel some of your old ones?

There is no clear-cut answer to this. It all depends on how responsible you are with the credit cards and where your credit score is already at. You may be fine applying for a new credit card if you can easily pay your bills in full each month and you haven't applied for new credit in a while. Just make sure the card you're applying for is actually worth the investment. Weigh the fees and rewards to see how the card stacks up next to your other credit cards.

If you have some credit cards that you're not using at all, or if you feel like your spending is beginning to spiral out of control, closing some of your credit cards can help, but this has its own downsides. Closing older credit accounts can bring down your average account age. It also raises your credit utilization ratio by lowering your available credit.

You may choose to hold on to the card and use it once in a blue moon in order to keep the account active. If the card charges an annual fee, it may be worth canceling it anyway, but you should evaluate how this will affect your average account age and credit utilization ratio before you do so.

There's no magic number when it comes to how many credit cards you should own. It all depends on how you use them. The best way to find out how many cards are right for you is to take a hard look at all of your existing credit cards and any new cards you're looking at and ask yourself whether they'll pay off through rewards and help to raise your credit score.

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