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Dollar Scholar Asks: How Many Credit Cards Is Too Many Credit Cards?

This is an excerpt from Dollar Scholar, the Money newsletter where senior writer Julia Glum teaches you the modern money lessons you NEED to know. Don’t miss the next issue! Sign up at money.com/subscribe and join our community of 160,000+ Scholars.

I tend to go overboard when I find something I like.

I recently bought a bedazzler, for example, and for good measure I added 4,000 rhinestones to go with it. Last time I ordered from Bath and Body Works, I got not one, not two, but four different candles. And none of them were winter scents, so that’ll be a whole other purchase.

One area where I’m not sure whether it’s OK to overdo it, though, is credit cards. I currently have two, but I’ve read before about people who have, like, 10 so they can maximize rewards. I’m not a credit card hacker, just a 29-year-old worried about her credit score, so I decided to investigate.

How many credit cards is too many credit cards?

I called John Ulzheimer, a credit expert who formerly worked for FICO and Equifax, to get some insight. He told me there’s no one-size-fits-all answer when it comes to how many credit cards a person should have. (Looking at you, Dave Ramsey.)

From a practical standpoint, Ulzheimer said to have enough cards “where you never find yourself having a lack of a method of payment.” Basically: To avoid ending up stranded at the register when a cashier tells me they don’t take American Express, I should have a backup Mastercard. This can also be helpful if I’m prone to misplacing cards or traveling abroad — for example, Canada is notorious for not accepting Discover.

From a scoring angle, Ulzheimer said the concern is my credit utilization: the percentage of available credit that I’m using at any given time. I generally want to keep my credit utilization rate under 30%, though Ulzheimer prefers no more than 10%.

Because my utilization rate is calculated by looking at how much I’ve charged to my cards vs how much credit I have total, I can use multiple cards to keep it low. I just need to do some math.

I can work it backwards. Ulzheimer said to look at my bank statements and figure out what my typical monthly balance is across all of my cards for the past year. If, say, I see that I’m spending $1,000 a month, I need to have $10,000 in credit available if I want my balance to equal no more than 10% of my limit. I can achieve this by having two cards each with a $5,000 limit. Or one with a $2,000 max and two cards with $4,000 limits. And so on.

In fact, Ulzheimer said, people who heavily use credit cards — and therefore have a high balance — may need five or six. Luckily, this also solves the aforementioned usability issue.

Experian’s director of consumer education, Rod Griffin, was more conservative in his guidance. Griffin told me that while there’s no quote-unquote “ideal” number of credit cards to have, “one or two is sufficient” as far as my credit score goes.

“You should think about your personal financial situation and how you’ve managed your credit in the past when determining the number of credit cards that’s right for you,” he says.

That’s because there’s more to my credit score than utilization, and Griffin says “opening new accounts to offset high balances usually backfires.” Not only will the inquiries hurt my score, but also if I have several cards, I may be tempted to overspend. Credit card debt typically comes with a high interest rate.

“Aside from the struggle to keep multiple payment due dates organized, applying for too many credit cards in a short amount of time can make you look risky to a lender and can harm your credit score,” Griffin adds.

The catch is that not having enough credit accounts can lead to a thin file, which can also harm my score.

How is everyone else dealing with the rock/hard place? Well, according to a September report from Experian, the average American has three credit card accounts. The average balance is $5,525.

Whenever I’m considering getting a new card, Griffin said I should ask myself if I have a plan for paying the card balance and whether it matches my lifestyle.

When I’m looking at cards I already have, he said to ask myself how often I use it, whether it has an annual fee and whether it comes with rewards that benefit me. If I don’t use it often, the fee is high and I’m not really taking advantage of perks, I may want to close an account or two. (My score may temporarily dip as a result, but it should even out later on.)

No matter how many cards I have, it’s important to make sure I’m using them responsibly by paying the balance in full every month.

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The bottom line

While I don’t need 1,497 credit cards like this guy, I should probably have at least two from a usability perspective. From a credit score perspective, I’ll want to have enough cards to keep my utilization ratio in check.

It’s true that not having many credit cards can damage my score, but so can having too many. Going overboard — in either direction — won’t benefit me.

“Credit cards aren’t right for everyone,” Griffin says. “You can still build a strong credit history without using credit cards, and if you can’t resist the temptation to ‘just charge it,’ a credit card could do far more harm [than good] to your finances.”

More from Money:

Kind but Risky: Before Adding an Authorized User to Your Credit Card, Consider These Crucial Factors

How to Repair Bad Credit

Here’s Why it Pays to Have a Good Credit Score (Even if You’re Not Buying a House)

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