(NewsNation) — Having multiple credit cards can help boost your credit score, but that doesn’t mean it’s the right decision for everyone.
Your FICO credit score is based on five categories, with some more important than others: Payment history (35%), amounts owed (30%), length of credit history (15%), new credit (10%) and credit mix (10%).
When you have more than one credit card, that second category, “amounts owed,” could benefit. That’s because the amount of debt you have is not as important as your credit utilization — the percentage of your total available credit you’re using.
Having several cards increases your total available credit, which means that as long as your spending doesn’t go up, your utilization should go down.
Think about it like this: a person with a $3,000 balance on a single credit card with a $10,000 limit has a utilization rate of 30%. Meanwhile, someone with a $4,000 balance across two credit cards, each with a $10,000 limit, has a utilization rate of 20%.
In the eyes of credit agencies, the person with the higher balance spread between two cards is considered lower risk because they’re using a smaller share of their available credit.
On the other hand, if having access to more credit causes you to spend more, then signing up for additional cards might be a bad idea.
“It’s often recommended to keep your credit utilization ratio below 30%, but that’s not a hard and fast limit,” said Ted Rossman, a senior industry analyst at Bankrate.
According to a recent Experian report, people with exceptional credit scores of 800 to 850 had a credit utilization ratio of 7% on average.
How many credit cards should you have?
The ideal number of credit cards will depend on your spending habits and financial goals.
“Three or four is a good number for a lot of people, but you can build credit with as little as one,” Rossman said.
Research from Experian found U.S. consumers carried 3.9 credit cards on average in 2023 — down from 4.2 in 2017. But Americans with exceptional FICO scores — 800 to 850 — had 4.8 credit cards on average.
While there isn’t a perfect number of cards to have, signing up for several in a short period is a bad idea, Rossman warned.
“New credit” makes up 10% of your FICO score, and applying for multiple credit accounts at once can make you look like a risky borrower.
Generally, it’s a good idea to wait at least 90 days between new credit card applications — and it’s even better if you can wait a full six months, according to Bankrate.
You should also keep your spending behavior in mind. If you’re unorganized and unable to juggle multiple balances and due dates, then more credit cards could be an issue.
At the end of the day, it’s not worth improving your utilization rate if it makes you less likely to pay on time.
“Just use it like a debit card,” Rossman said. “Pay it off right away, don’t owe interest.”
Other benefits of having multiple credit cards
One of the reasons Americans love credit cards is because of the rewards.
A recent Ipsos poll found that 71% of respondents have a rewards or cashback credit card, and 68% said that they prefer using their credit card because of the rewards and points that they can earn.
But different cards offer different perks. Some are better suited for travelers, while others offer benefits at specific retail stores. As you shop around for new cards, it’s worth diversifying to make the most of different offers.
If you wind up no longer needing a card, it’s generally better to keep it open rather than canceling. FICO considers the length of your credit history, and typically, it’s in your best interest to have a longer credit history.
One other point to keep in mind: your specific credit score matters less after a certain level.
“You’re not going to get better terms if you’re an 840 versus an 820 versus an 800 — there is such a thing as good enough,” Rossman said.
In other words: If your credit score is already exceptional, signing up for another credit card to squeeze a few extra points may be more trouble than it’s worth.
