How Many Credit Cards Is Too Many?

• Assuming your purchases and balances do not change, you will reduce your utilization by increasing your available credit.
• Having a primary and secondary credit card can be rewarding if you choose two cards that complement each other.
• Having access to a lot of credit can mean a greater temptation to spend beyond your means. In this case, fewer cards can be better.

The average Canadian has two credit cards. So, if you were to peek into your neighbour’s wallet, it is likely you would find at least two—in some cases, even more.

Consumers can build up a credit history through the responsible use of credit cards, but is there a point where you have too many open accounts? It comes down to your financial habits and how you use the payment capabilities the cards provide.

Having multiple cards can be a good idea

When reviewing your credit report, you will see a list of your open accounts and payment history. That includes personal loans, student loans, cell phone bills, mortgages, and yes—credit cards. Companies calculate your credit score based on several factors, including your credit utilization ratio, age of credit, payment history, credit mix, and credit inquires.

Here is how having multiple cards can help your score.

Credit utilization ratio

The credit utilization ratio is the amount of credit you use against how much total credit you have available. Think of utilization as how much of the available credit you have that you are using.

Likely, the more cards you have, the more available credit. Assuming your purchases and balances do not change, you will reduce your utilization. The ideal credit utilization ratio is 30% or lower.

Recent credit inquiries

Your score may fluctuate when you get a new credit card because you have increased your overall credit ceiling. However, you have also made a credit inquiry, which can count against your score. For most people adding one card, this is a slight temporary fluctuation.

However, it can be damaging if creditors see you have applied for many cards within a short period. There are two different types of credit inquires, and they have important differences.

The types of inquiries:

• Soft pull: When you inquire about your credit or a lender reviews your account. This type of inquiry does not affect your credit score.
• Hard pull: A lender will access your information when you apply for new credit, which will slightly affect your score. However, too many inquiries in a short period will signal an urgent need for credit and cause a significant decline in your rating.

Credit history

Once you have open accounts, you have started to build a history for yourself. The longer the account stays open, the better for you—assuming you can keep it in good standing.

That is why it is always a good idea to make the occasional charge to cards you do not use so they stay on your record. Keeping active accounts will ensure the provider does not cancel the card for inactivity.

Credit card perks and insurance

Having a primary and secondary credit card can also be more rewarding. Rewards credit cards typically offer insurance and perks. Choosing two cards that complement each other can ensure you get the most bang for your buck.

For example, having a travel credit card with an annual fee may provide extended insurance, benefits and rewards. Pairing that card with a no-fee cash back card that offers a strong return on everyday purchases can allow you to earn rewards faster. By choosing your payment option wisely, you will receive the most rewards for each purchase. You will earn cash back and travel rewards and get extra travel benefits and insurance coverage.

Other benefits

Having at least two cards can act as a kind of safeguard in case there is a technical glitch with one. Consider having at least one card from each provider. For example, you could choose a Visa and a Mastercard, so you always have a backup.

You may come into problems when you are travelling out of the country and must deal with other banking networks. Your card that works at home may suddenly be unavailable overseas. Having two cards will provide you with two payment options.

Then there is also the benefit of building up a customer history with a few different banks. That can give you more financial options down the road when you want to apply for a mortgage, refinance, or new investment opportunities.

Having many credit cards can also be risky

So, the short answer is that there is no such thing as too many cards. However, the long answer is that it depends on your lifestyle.

Having access to a lot of credit can mean a greater temptation to spend beyond your means. The credit utilization ratio is one thing, but high debt loads also take away from your credit rating and can make life quite stressful as you try to figure out how to pay things off. There is also the chance you may miss a payment if you are trying to juggle too many open accounts.

There are other risks, too. Having many cards means you must watch over more accounts that can be vulnerable to theft. No one wants to be a victim of fraud or a banking scam. Plus, your credit score goes up if you have diverse forms of credit. Instead of getting another card, it might be better for your rating to get a line of credit, for example.

Some of the pros and cons of having multiple credit cards:

Pros:

• Could mean a better credit utilization ratio
• Good for credit history
• Access to different banking networks
• Backup in case of emergency
• Customer history with various providers

Cons:

• The temptation to increase the debt load
• More payment deadlines to remember
• Risk of fraud or theft
• Lack of credit diversity

At the end of the day, it is a personal judgment call and a question of what you feel you can manage.

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