One of the most often asked questions about credit cards is ‘what’s the ideal number of credit cards to have?’ The question is asked as if there is a magic number that will tell lenders that you’re credit-worthy without hacking away at your credit rating because you have too many credit cards. The reality is not that simple.
The ideal number of credit cards is a very individual thing. It depends on a combination of factors, including what type of credit card each one is, your monthly income, the amount of credit available to you and your history of making payments on your credit cards. According to the NS&I Quarterly Savings report issued in June, the credit card UK market is doing booming business, with 4.1 credit cards for every adult in the UK. So is 4.1 the magic number?
In most cases, say financial experts, the right number of credit cards is between 2 and 6. Of those, you should have at least one major credit card – Mastercard, Visa or American Express – as those are accepted nearly everywhere you go and are the most genuinely helpful in the case of an emergency. Other credit cards you may carry include a store credit card – which generally charge interest at whopping rates close to 30% – and a gasoline card. More important than how many cards you’re carrying, though, is how much you owe on them.
One of the things that factors into your credit score is your debt/credit ratio. The credit bureaus compare how much credit you have available to you in relation to how much you’re currently using. If you have one credit card with a credit limit of £1000 and you’re carrying a balance of £500, then you’re using 50% of your available credit. Is that good? That depends on the source of your information. Some lenders would consider 50% credit usage to be unacceptably high. For others, it’s right in their target zone. The most conservative lenders balk at a debt/credit ratio above 25-30% of your available credit.
There are other reasons to limit the number of credit cards you carry as well. When you have one credit card, it’s easy to keep track of your spending and your account due dates. Add a second credit card, and you’re still all right – but what happens when your one credit card turns into 15 in your wallet? At that point, you’re at serious risk of accidentally missing due dates out of sheer forgetfulness – and that will kick up your monthly charges, sometimes on more than just the affected card.
So what is the ideal number of credit cards? Here are some rules of thumb to help you decide if you have too few, too many or just enough:
1. Your monthly credit card payments should be no more than 25% of your monthly income.
2. If you’ve forgotten to make a credit card payment because you just MADE a payment – but it was to another company – you probably have too many cards.
3. If you can only make the minimum payments – and sometimes not even that – then you should consider consolidating some of your debts onto one credit card. UK companies offer many balance transfer cards that can help you consolidate your debts.
4. If you’re not sure which cards are at or close to their limits, you probably have too many.
5. If your total debt is less than half of your total available credit, you’re probably in pretty good shape.