Should I have multiple credit cards?

Have you ever had someone tell you not to get “too many credit cards?” I know I’ve heard it before, but never fully understood why. When I found out the average American only has 2.69 credit cards I wondered how many credit cards really are too many? And is having several credit cards even a bad thing? While for some people who struggle to manage their finances, it very well can be. But for others, who are financially disciplined, having multiple credit cards, can actually be beneficial. Here’s why:

It Increases your credit limit which can lower utilization. Inevitably, by opening a new credit card you increase your total credit limit. This means if all else stays the same in your spending habits, you will have a lower total credit utilization. Credit utilization is the percent of your total credit limit you send. This is important because the lower your utilization is, the better your credit score is, and in order to maintain a strong score, you want a utilization below 10%. Having multiple cards helps this because the greater limit you have the easier it becomes to keep a low utilization. For example, if one card has a limit of $6,000 and you spend $2,000 a month that’s a 33.3% utilization. But if you were to open a second card that has a limit of $10,000 and divide your spending between the two cards your utilization now falls at 12.5% which, while not quite 10% is still marginally better for your score.

It’s important to understand that this is only possible if you divide the spending between both cards. Simply just opening a card and continuing to put all your spending on one card will not lower utilization because utilization is looked at on a per-card basis, not in summation across all cards. As long as your spending remains the same and you pay off your balance in full every month this benefit will only compound the more cards you open (within reason — you’ll never want to open too many cards too fast). Generally speaking, waiting at least 6 months between opening cards is a good rule of thumb.

Diversify benefits, maximizing rewards. Having multiple cards gives you a broader range of benefits across spending categories. For example, many cards are designed to offer greater perks in a specific category. Examples include “travel” cards, “gas” cards, “everyday” cards, and more. Additionally, for people who spend large amounts at specific businesses, there may be cards for those as well — the Apple Card or Amazon Prime Card are examples. When you have multiple cards you can leverage the highest rewards categories for each card. For example, a great travel credit card is the American Express Platinum Card. If you were to book a flight and use this card it would provide 5x points on airfare, but if you were to purchase a few things from Amazon with that same card it would only provide 1x points because its rewards are focused on travel. For an Amazon purchase, you could use the Amazon Prime Card because it provides a 5% cashback there. So by having a diverse portfolio of cards you maximize the reward you get from credit cards with every purchase category and avoid being limited to one specific channel. The best way to approach this would be to look at your spending from the past year and determine what things are or where are the places you spend the most. Then apply for cards (over time) that are the best for those categories, and use accordingly. (Shameless Plug: Use MaxRewards, to highlight when and where to use each card so you don’t even have to think about it past your initial application. I outline MaxRewards in my post on 3 tech tools all credit card users need).

It will increase your score. Creditors will check your credit history before they give you a line of credit, and the more history you have the more likely you are to get approved (as long as the history is all positive). For those with shorter, or no history it will be significantly harder to get approved for cards. By having multiple cards you stabilize your average “Credit Age.” This makes it less vulnerable to deductions when you do apply for a loan or a new card. Credit age is the average length of time you have had an open account. It’s calculated by adding the time for every line of credit you have and then dividing by the total number of credit lines. Having multiple credit cards makes it harder for that age to be reduced. Say you have had one credit card for 10 years and then apply for a new credit card. Your average credit age would drop to 5 years. Not bad, but not great. However, if you had two cards for 10 years and then applied for a new card your average credit age would instead be 6.7 years — significantly better than 5.

Good average credit age is considered to be over 7 years. By holding more cards it makes the age drops from applying for a new card less and less impactful, stabilizing your score.

The one downside to this is that your score has a temporary decrease with every application because you are making a hard inquiry on your credit. However, it’s important to note that this is only one of the five pillars that affect your credit score and has a minimal impact on that. This negative impact is circumvented by the positive performance in the other pillars — the ability to build credit faster with greater stability for the future. This will however matter if you attempt to apply for multiple credit cards in a short period of time. For example, applying for several credit cards over the course of just a few months hurts your score significantly. This happens because asking for several new lines of credit all at once is flagged creditors. They’ll view you as a higher risk if you don’t do it gradually over time as you have not proven the ability to handle that spending power. Additionally, every time you apply for a credit card creditors perform a hard inquiry on your credit score which results in a temporary deduction. This does not have a huge impact in a one-off case, but doing so several times in a few months can make a big impact. If you instead apply for cards gradually this can be offset by the benefit of having multiple cards.

Many will also argue multiple credit cards are a bad thing and claim the more lines of credit you have the greater risk you are perceived to be by creditors. However, this is only true if you apply for multiple lines of credit in a short period of time. Outside of that the greatest risk of having multiple credit cards is yourself. Many people are unable to manage them all and lose track of their spending leading to debt. This is why they claim having multiple credit cards is dangerous. But, this can easily be circumvented by having a tight budget and sticking to it to avoid the overspending that would lead to debt.

If you’re the right person for it — someone who’s financially disciplined — you would be doing a disservice to yourself to not have multiple credit cards. If you’re someone who wants an additional credit card simply to have access to more spending because you max out your current card then it probably isn’t such a good idea. It would create more issues than it solves and you should not apply for a new card. In fact, if you’re maxing out your current card and not able to pay it off in full every month you should reconsider having a credit card altogether and instead work on getting a stronger grasp over your finances before reapplying. For those of you who have a strong grip on your finances, think about where you spend the most and look for good credit cards to apply for in those categories. I recommend watching The Credit Shifu’s video on the first 5 credit cards you should apply to which will give you some ideas on the cadence in which to apply. You should begin improving your credit score and diversifying benefits through credit cards. Having multiple credit cards will do this for you if you keep a low utilization, and always pay your balance in full on time.