How Many Credit Cards Should I Have?

There may not be a magic number, but you should consider these factors.

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The number of credit cards you choose to have is an important personal finance decision. Factors like your spending habits, current debt and credit report may influence whether or not you choose to open a new credit card—and if you qualify for one. Why does the number of credit cards you have matter? Your credit profile is a large part of your digital identity, which includes a record of your financial activities.

And one of the factors that contributes to your digital identity is the number of credit cards you have in your name.  

While there isn’t a specific ideal number of credit cards you should have, there are several variables to consider when it comes to opening an additional card.

For example, having fewer than five credit accounts (not just cards, but also other types of credit, such as loans) can make it difficult for the three credit bureaus—Experian, Equifax or TransUnion—to assign you an accurate credit score. Lower scores affect the interest rates you’re granted for auto loans, student loans, mortgages and more. 

The five factors that impact credit score

There are five important factors that determine your credit score, each of which has a specific percentage indicating how much it impacts your number.

1. Payment history 

How long you’ve had credit cards and how long you’ve made timely payments make up 35% of your credit score. 

If you’ve missed payments or made them late, your score will take a hit. And the more cards and loans you have, the more payment history there is to manage.

2. Amount of debt

The amount of debt accumulated across loans and credit cards makes up 30% of your credit score. As with your payment history, more credit cards could mean more debt to manage. If you have a high debt-to-income ratio, your credit score will take a hit.

3. Length of credit history 

The amount of time you’ve had a credit card accounts for 15% of your credit score. This means that it may take some time for your new credit card to positively impact your credit score.  

4. Credit mix 

The range of loan types in your credit profile constitutes 10% of your credit score. So if you have a credit card, an auto loan, a mortgage or another type of loan in the mix and you’ve made your payments on time, your credit score should be positively impacted.

5. New credit 

New credit makes up 10% of your credit score. When you open a new credit card, the application triggers a hard inquiry, which can have a negative impact on your score. New credit will also impact your credit history. 

Tips for getting approved for a new credit card  

Think it makes sense for you to get a new credit card? Take these three steps before you apply.

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1. Calculate your debt-to-income ratio. 

Another way lenders establish your creditworthiness is through the debt-to-income (DTI) ratio. The ratio is determined by dividing by your gross monthly income by your monthly debt payments. Use this handy DTI ratio calculator to determine your ratio.

The lower percentage your DTI ratio, the more likely you are to get approved for a new credit card. Typically, lenders will look for a DTI ratio of 35% to 40%.  

2. Know your credit score and improve it if needed. 

One of the best ways to improve your credit score is to pay off your credit card debt in a short period of time.

As you’re paying the debt back, strive to pay more than the minimum amount each month. While it may seem nice that the monthly minimum payment is low, remember that only a little bit of this payment goes toward the principal, and the rest goes to interest. The more you pay each month, the faster you can pay off the debt.

Another tip: Take advantage of any cash-back rewards you have on your existing cards. As you spend money and earn cash back, you can use that money you get back to help pay your debt.  

You can also try these seven tips for paying off your credit card.  

3. Choose the right credit card.

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Stick with established credit card issuers such as American Express, Discover, Visa and AAA. And choose the issuer with the card that best suits your lifestyle and needs.  

When looking into a specific card, ask these questions:

What are the perks?

Some credit cards are great for cash-back rewards, while others help you achieve your travel dreams. Consider your goals for having a credit card and choose an issuer that has the perks to suit that goal.  

What is the credit limit? 

You’ll find that most credit card issuers base your credit limit on your credit report and your gross annual income. If you’re just starting out in your financial journey, it’s common for the limit to be under $1,000, but there could be a significantly higher credit limit if you have a good credit score.

What is the annual fee?   

Some cards require an annual fee, but others don’t, and the amounts vary widely. However, with the right rewards program, the perks can make up for this fee and more.  

Can I make or save money with this card?

Some cards offer sign-up bonuses, while others give travel rewards. Some cards grant you access to brand partnership discounts. For more ideas, consider these tips for making money via credit cards.  

4. Don’t apply for too many credit cards at once.  

When applying for a new credit card, remember that each application triggers a hard inquiry. Sometimes also called a hard pull, a hard inquiry is when a lender or credit card issuer takes an official look at your credit score.  

This matters because each time it happens, it’s noted on your credit report. If you have too many inquiries, it’s a red flag to lenders that your debt-to-income ratio may be high. Too many credit inquires can hurt your credit score, although one inquiry a year will not impact your score. If you need to man an inquiry more than once in a year, you can get free credit reports at Credit Karma with no impact to your score.

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