What’s the Right Number of Credit Cards

Many people ask me what the right number of credit cards to have is, but there is no universal perfect number. The ideal number varies based on individual financial situations, spending habits, and financial/travel goals. While some may prefer one or two cards, others may benefit from several cards for various purposes, such as earning rewards, building credit, and taking advantage of welcome bonuses.

Determining the ideal number of credit cards

The right number of credit cards for you depends on your financial habits, goals, and credit management skills. 

First, assess your credit score and monthly spending. A strong credit score and a history of on-time payments suggest that you can effectively manage multiple cards. Conversely, if your credit is less than ideal or you find it challenging to keep up with payments, fewer cards may be beneficial.

1-2 Cards

• Simplicity: If minimalism suits your lifestyle, one or two cards make it easier to track expenses and payments. Generally, you want two different card types, such as one Visa and one Mastercard. With this strategy, you’ll likely always have a card that will work at merchants. 
• For building credit: Starting with a single card is the way to go if you’re new to credit or rebuilding. For some people, you may be forced into getting a secured credit card to build/rebuild credit. Once your score increases, you could add a second card for access to more credit and a healthy credit mix.

3-5 Cards

• Maximizing rewards: Having 3-5 cards can optimize rewards and benefits. For example, you could have the American Express Cobalt as your daily spending card, the TD Aeroplan Visa Infinite for free Air Canada checked bags, and the Triangle World Elite Mastercard for free roadside assistance.
• Welcome bonuses: The quickest way to earn points is by applying for new cards that have generous welcome offers. If you can manage your money well, applying for two new cards a year isn’t unusual.
• Credit Utilization: More cards can lead to a lower credit utilization ratio as long as you maintain low balances, positively affecting your credit score. Yes, you could just increase the limit on one card, but having multiple cards is still beneficial if some have no annual fees and good benefits.

The key thing to understand is that every credit card you have should have a purpose. If it doesn’t have a specific purpose, cancel it.

Strategies for managing multiple cards

Effectively managing multiple credit cards requires a focused approach to optimizing rewards, tracking payments, and avoiding debt. The following strategies will help you handle multiple cards.

Optimizing credit card use

To maximize the benefits from credit card rewards, choose the right card for the right purchase. For example, if you have a card offering 5% cash back on gas and another offering only 2%, always use the former to fuel your vehicle. Here’s a simple breakdown of how to allocate card usage:

• Gas purchases: Card with the highest rewards or cash back on fuel.
• Grocery shopping: Card with the highest points on grocery spending.
• Travel expenses: Card with a high earn rate on travel or one with no foreign transaction fees.

Note that if you’re working on a welcome bonus, it often makes sense to put all your spending on that card, regardless of category, to ensure you meet the minimum spending requirement.

Keeping track of payments and due dates

Keeping track of your payments is critical to avoid interest charges and maintain a good credit score. Consider these tips:

• Set up automatic payments so never miss a due date. 
• Always opt to pay the full amount due so you don’t incur interest charges.
• Utilize calendar alerts to remind you when manual payments are due.

Avoiding common pitfalls of multiple cards

While having multiple credit cards is fine, there are still a few things you need to watch for:

• Spending just for the sake of rewards: The rewards you earn will never be worth more than the interest you pay.
• Forgetting to cancel cards: If you’ve signed up for a card just for the welcome bonus, don’t forget to set an alert to cancel it before the next annual fee posts.
• Losing cards: Ensure you have all your cards in a secure place to access them anytime.
• Ignoring benefits: Some cards come with yearly benefits. Use them to maximize the value of your cards.

By implementing these strategies, you can navigate multiple credit cards effectively.

Building your credit score

Regardless of how many credit cards you have, you can use them to build and maintain a strong credit score. Each card affects your credit utilization, payment history, and credit mix so take steps to ensure you have a healthy credit history.

How Credit Cards Impact Your Credit Score

• Credit utilization: Your credit score is significantly influenced by your credit utilization ratio, which is the amount of credit you’ve used compared to your total credit limit. A good credit score requires keeping this ratio below 30%.
• Payment history: Timely payments are crucial, making up 35% of your credit score. Missed or late payments can considerably lower your score.
• Length of credit history: The age of your credit accounts matters. A longer credit history can contribute to a higher score. Hence, keeping older accounts open might be beneficial even if you’re not using them frequently.
• New credit inquiries: When you apply for a new card, a hard inquiry is triggered, which can temporarily reduce your score. Too many hard inquiries in a short time are seen as risky behaviour by lenders.
• Credit mix: Having various credit types, including credit cards, automobile loans, and mortgages, shows lenders you can manage different types of credit.

Tips to Improve Your Credit Score

• Monitor and manage your balances: Always keep track of your spending to ensure you stay well below your credit limits, which helps maintain a low credit utilization ratio.
• Set payment reminders: Pay your bills on time consistently. Automatic payments or calendar reminders can prevent late payments and their potential negative impact on your score.
• Limit new credit applications: Apply for new credit only when necessary. This will limit hard inquiries and prevent your credit history from being comprised of too many new accounts.
• Review your credit reports regularly: Check your credit reports annually for errors and dispute any inaccuracies. Errors can affect your credit score, and you have the right to correct them.
• Be Patient: Building a good credit score doesn’t happen overnight. Continue practicing good credit habits, and over time, you’ll see improvements.

Understanding credit card rewards and fees

Applying for the right number of credit cards involves balancing the benefits of rewards with the cost of annual fees. If you’re getting more value out of the welcome bonus or annual benefits compared to the yearly fee, then getting the card is worth it.

When to Apply for Another Credit Card

Consider applying for another credit card if your current cards do not maximize the rewards on your typical spending categories or if you’re not reaching your financial objectives. You should also consider the yearly benefits you’re getting.

Types of rewards earned

Rewards vary widely, including:

• Cash back rewards: You can earn a percentage of your purchases back as cash. For example, a card may offer 0.5% to 3% cash back on specific or general purchases.
• Points: Accumulate points for each dollar spent, which you can redeem for travel, gift cards, or merchandise.

Rewards are sometimes higher in specific spending categories, like dining or travel, so it’s common for people to have specific cards for certain purchases.

Assessing annual fees

The annual fees for credit cards must be justified by the benefits received. Fees for basic cards start at around $50 and go up to $799 for premium cards with extensive perks. 

Some people are highly against annual fees, but they can be worth it. Consider the following:

• Perks vs. fees: Compare the benefits, such as airport lounge access, credits, and insurance, to the yearly cost.
• Break-even point: Calculate how much you need to spend to recoup the annual fee through rewards. For example, with a $100 fee and a 2% cash back rate, you’d need to spend $5,000 annually just to break even

Final thoughts

Determining the right number of credit cards is a personal decision. At the very least, you should have two cards: one as your main credit card and another as a backup. That said, there’s nothing wrong with having three to five cards, or even more. As long as you manage the cards well and don’t overspend, you’ll be fine.