TPG reader credit card question: How many credit cards should I have?

Dec 21, 2020

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One of the questions we are most frequently asked is, “How many credit cards should I have at once?” While it sounds like a pretty straightforward question, it’s actually a few different questions rolled into one:

Wallet with cash and credit cards

There are no simple answers to these questions. Credit decisions are highly personal, and what works for someone else might not work for you.

You could follow the lead of those with the best credit scores. Ethan Dornheim, FICO’s vice president of scores and predictive analysis, told CNBC that FICO’s research suggests that consumers with credit scores above 800 have an average of three open cards.

Or you could try to follow in the The Points Guy’s footsteps. Brian Kelly often has around 20 open credit cards, ranging from the Chase Freedom (no annual fee; no longer available for new applicants) to the American Express Business Centurion Card (a $5,000 annual fee). He manages to have an excellent credit score while earning and using lots of points and perks from a wallet full of cards. You could try to etch your name in the record books and outdo Walter Cavanagh’s Guinness World Record of having 1,497 credit cards. (I strongly advise against attempting to set that record.)

The truth is that the answer to how many credit cards you should have depends on your spending habits, your lifestyle and your goals. Let’s take a look at the questions you need to be asking to make this decision for yourself.

Related: How a FICO score works

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The right number of credit cards for excellent credit

There’s a myth that having too many credit cards will hurt your credit. But in fact, each credit card you have — and manage responsibly — will add positive information to your credit history over time. This can help to improve your credit score over time, even if adding new cards does cause your score to take a short term dip. However, this more-is-more effect is limited and your credit won’t continue to rise forever with each new credit card account you have.

Related reading: Yes, I have 19 credit cards; here’s why

To explain this phenomenon, I like to ask this question: Would you rather loan money to someone who once paid back one loan or to someone who has consistently paid back many loans? Of course, someone with a longer track record of timely loan repayments will be the preferred borrower. So someone with multiple credit card accounts, a perfect payment record and very little debt is going to be the ideal customer for a credit card.

The FICO credit score estimator from myfico.com

For more concrete proof of the advantage of having multiple, responsibly managed credit card accounts, you can take a look at the free Credit Score Estimator that FICO offers. The first question it asks is how many credit cards you have. And if you play around with it, you’ll find that you’ll receive a higher estimate when you have five or more credit cards than when you select two to four, or one. On average, I found about a five-point difference between each of these, with five or more being the best, though of course this is only one of the factors that makes up your credit score.

Related: How applying for credit cards impacts your credit score

The author’s credit score at the time of writing, and his credit score history from the previous year, as provided by American Express.

I have 18 active accounts for which I’m the primary account holder, and my FICO 8 credit score is 846 (based on my Experian credit report).

Why do I have so many credit cards? For me, it’s all about maximizing rewards.

The right number of credit cards for maximizing rewards

A big consideration in choosing the number of credit cards that you should have is how much you want to maximize rewards. There’s clearly one advantage to having a larger number of reward credit cards, since each can offer rewards-earning opportunities not found on other cards. For example, I use my American Express® Gold Card for my dining and U.S. supermarket purchases, where I earn 4x Membership Rewards points per dollar spent on up to $25,000 in purchases at U.S. supermarkets per calendar year (then 1x). Earning 8%, based on TPG valuations in rewards on my dining out expenses and grocery shopping is strong.

I use The Platinum Card® from American Express to pay for airline charges; it offers 5x points for flights booked directly with airlines or with American Express Travel (and flight protections) (starting Jan. 1, 2021, earn 5x points on up to $500,000 on these purchases each calendar year). I use my Chase Sapphire Reserve for other travel purchases where I can earn 3x points after earning the $300 annual travel credit, except at participating Marriott hotels where I use my Marriott Bonvoy Business™ American Express® Card to earn 6x points per dollar. And finally, I use my Chase Freedom Unlimited everywhere else since it awards 1.5% cash back (1.5 points per dollar), which turns out to be a 3% return since I also have a premium Ultimate Rewards credit card. I also hold cards that I use for my small businesses and for other rewards-earning opportunities.

Related: Maximizing the Chase credit card trifecta

I know people who use even more credit cards and collect points and miles from a greater assortment of airline, hotel and credit card reward programs. Some also supplement their rewards with cash-back credit cards, as their needs dictate.

If I looked at it strictly from the standpoint of maximizing rewards, the right number of credit cards can be a very large number. That’s how those who are really those serious about miles and points can end up with 15-20 (or more) open card accounts. 

Related: Best rewards credit cards of 2020

The right number of credit cards for responsibly managing your personal finances

As much as I love to use credit cards to earn rewards, I always tell people that responsibly managing your personal finances is far more important. It’s an absolute rule: You should never have more credit cards than you can manage responsibly. This means keeping up with them, paying your bills on time, doing the math on the annual fees and carrying very little, if any, debt. It also means controlling your spending and monitoring your accounts for fraudulent transactions.

Related reading: Tips on how to become financially independent

If you need to keep things simple with just one — or at most, two — credit cards, that’s OK. Do that even if it means you are leaving some rewards on the table. When it comes to personal finance (and especially credit card debt), downside protection is worth much more than a few extra points and miles.

If you’re unable to manage a single credit card responsibly, then the right number of credit cards for you is zero. Credit cards are powerful financial instruments and it’s better to use another form of payment, such as a debit card, if you’re unable to manage a credit card responsibly. There’s no shame in deciding that credit cards are not for you, if that’s what you need to do in order to responsibly manage your money.

Those who miss credit card payments and incur debt because of interest or penalties won’t come out ahead no matter how many miles per dollar they earn. Missing payments and incurring debt will also do far more damage to your credit score than any minor advantage you may gain by having multiple credit cards.

Bottom line

Fixing on the right number of credit cards begins with determining the number of accounts that you can responsibly manage each month — and not having a single credit card more. But if you’re able to skillfully manage multiple card accounts, you shouldn’t be afraid to add an additional one that offers you a new way to maximize your rewards, as it won’t hurt your credit score in the long run.

Featured photo by Orli Friedman / The Points Guy.

Additional reporting by David McMillin

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