How many credit cards is too many? I have four unused cards set aside for emergencies — is this a smart move or am I asking for trouble?
It’s not uncommon to carry multiple credit cards, but how many is too many?
On average, the American credit card holder carries 3.9 active cards in their wallet. And while that statistic doesn’t offer a definitive answer to this question, experts believe it all depends on your lifestyle and the purpose each credit card serves. For example, those who carry multiple credit cards often have one or two for personal use and another one for business.
But what if you carry, let’s say, four unused credit cards just for emergencies? Is that too many, or is it smart to have a lot of available credit in case you need it?
Since your credit score has a big impact on your overall financial situation — as does the amount of credit card debt you carry — answering these questions is fairly important.
So, let’s take a look at the pros and cons of carrying multiple unused credit cards.
There are quite a few benefits to having multiple credit cards open at a time.
First of all, if you have several credit cards and carry a low balance on them, this improves your credit utilization ratio, which is the second most important factor in the credit-scoring formula.
Your credit utilization ratio is calculated by dividing the credit you’re currently using by the amount of credit available to you. So, if you have four credit cards — each with a $1,000 limit while carrying a $100 balance across all four cards — your ratio would be $100 divided by $4,000, which comes to 2.5%. Experts recommend a credit utilization ratio below 30% to boost your credit score.
Having multiple credit cards open also allows you to take advantage of the benefits and perks that each card offers. For example, if one card offers 5% cashback on groceries while another offers 5% on gas, you can use different cards for different transactions to maximize rewards.
If you have four cards, you’ll also have a lot of available credit — although this can be both a blessing and a curse. For instance, using credit cards for emergencies can be dangerous since these cards often have very high interest rates, and putting surprise expenses on your card could mean you end up in debt, struggling to pay back what you owe.
However, if some of your credit cards have special promotions, like a 0% introductory annual percentage rate (APR), having a lot of accessible credit at zero interest can help you pay for big purchases over time without paying interest — as long as you repay the full balance before the interest starts accruing.
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Before you rush out and sign up for multiple credit cards, you should also consider the downsides to this strategy.
Since four credit cards is a lot of cards to manage, you run a greater risk of missing a payment if you’re using all of them. Plus, depending on how the rewards programs work, you may not use any one of the cards enough to redeem the rewards.
Meanwhile, if you aren’t using all of your cards, there’s a chance they could be closed due to inactivity as credit card companies don’t typically let customers keep unused cards open forever. If this happens to you, the loss of an account could hurt your credit score by reducing your available credit, as well as your length of credit history — the period of time that your credit accounts have been open. Length of credit history accounts for 15% to 20% of your credit score.
Unused credit cards also create a greater risk of fraud, since you might not notice if someone starts using your card unless you’re regularly checking the statements. And, if your cards have annual fees, you could be wasting a lot of money keeping cards open that don’t justify their value.
Lastly, having a lot of credit available to you creates the risk of falling into debt if your spending habits get out of control, or if you start relying on these cards for emergencies.
Ultimately, the right number of credit cards for you depends on multiple financial factors, including how responsible you trust yourself to be, how much time you want to spend managing multiple cards, and your goals for owning multiple credit cards.
If you want to maximize rewards, you trust yourself not to overspend and you’re OK with actively managing four accounts, having this many cards may be right for you. Just be mindful that inactive cards will eventually be closed, so you may want to use your inactive cards here and there for the odd $20 transaction to keep the accounts active.
But if you want to simplify your life, or don’t trust yourself not to charge too much on all of your cards, you may be better off with just one great rewards card.
By thinking about these issues, you can decide what’s best for you. Just remember to be careful — signing up for too many cards could lead to you closing some of them in the future, and closing cards isn’t great for your credit score.
You should also make sure you have an emergency fund instead of relying on cards, as using your credit in an emergency could cause long-term financial problems if you struggle to pay off the balance.
This article provides information only and should not be construed as advice. It is provided without warranty of any kind.
