How Many Credit Cards Should I Have Until It’s Too Many?

Various types of credit card logos, Visa, Mastercard, AMEX, DiscoverI was having lunch with a buddy of mine when he whipped out his foot long man wallet to pay the bill. “Whoah!” I said. “Where do you keep that thing?”

“In my man bag, of course!” he replied with pride. Todd lifted up his soft leather Bally bag that probably cost a thousand dollars. “Have a touch,” he said as he tossed it over. Todd’s bag was as supple as a baby’s bum.

The reason why Todd’s wallet is so big is because he has 10 credit cards all nicely color coordinated from top to bottom. The most prestigious cards – the black ones of course – were at the top. But as I looked closer at his collection, every credit card of his said “Preferred,” “Platinum” or “Elite.”

One could call Todd a credit card connoisseur. “I’ve got a card for every purpose,” told mentioned proudly. “Never leave home unprepared!”

Despite what is probably hundreds of thousands in credit at his disposal, Todd still rents a one bedroom apartment and has less than $80,000 his 401(k) at 35 years old because he’s spending all his money! In fact, he admitted to having around $18,000 in revolving credit card debt spread across seven cards. At least he’s got a nice BMW 650i coupe on lease for $899 a month.

So I got to thinking, maybe the reason why Todd has so little assets for a man making six figures a year is because of temptation from all his credit cards. When there are no cookies in front of me, I never eat desert. As soon as you put out a tray of gooey white chocolate chip cookies at my disposal, it’s game over!

THE MOST CREDIT CARDS I’VE EVER HAD

Some people are completely against credit cards because they’ve gotten themselves into debt troubles before. Alcoholics should not hang around in bars. By only using a debit card or cash, such anti-credit card users help minimize themselves from relapsing into debt. I commend their cold turkey approach, but it’s not for me.

I recommend everyone have at least one credit card to build their credit score, use as an emergency, borrow money for free for 30 days, earn rewards points, and minimize the pain of losing cash when you lose your wallet. The question is, how many credit cards is ideal for optimal financial health. Let’s discuss!

The most credit cards I ever had was between the ages of 22-24 when I had five. I thought it was so smart to open up new credit cards with 12+ month long 0% introductory APR rates, pay the minimum for the full term and then transfer the balance to another 0% APR credit card. Borrowing money for free is always a splendid thing to do when you are young, poor, and have a lot of time on your hands.

Unfortunately, there’s a point where the “spend more, save more” mentality runs out. Notably when it becomes absolutely backwards to keep spending just because the interest rate is cheap. More than anything it felt annoying to always have a revolving balance so I decided to quit with my credit card shenanigans and just focus on better spending habits.

DOWN TO ONLY TWO

From 2001 to 2013 I only had two main credit cards: 1) my American Express corporate card and a 2) Citibank ThankYou credit card because I’ve been a long time banking client. The reason why I only had two credit cards was both physical and mental. On the physical front, I can’t stand having a thick wallet. The wallet is always in my right butt pocket for all you pickpockets out there and it’s uncomfortable to sit down when things are uneven. The second reason for having only two credit cards is due to record keeping.

By only having one personal card, I was able to comfortably keep track of all my expenses online and make sure I was not going over budget. For example, if I had a $2,000 a month credit card budget, I didn’t have to stay on top of numerous credit card balances. My expenses for the month were essentially my credit card bill + the amount of cash withdrawn from my checking account. Having one credit card made it much easier to SAVE money.

Now that I have a third credit card to earn points for travel, I’ve got to be a little more diligent about my spending. With a 0% introductory APR, 40,000 bonus points, and the first year’s fee waived, I’m reminded of the times when I had multiple credit cards once again. Now I’m tempted to take advantage of new credit card offers with bonus points. It feels a little like going into relapse!

Just imagine, if I can earn 40,000 rewards points just by signing up and use a credit card to buy a $100,000 Range Rover to earn a total of 240,000 points, why wouldn’t I? That’s five or six round-trip flights from San Francisco to Hawaii. Unfortunately, car dealerships usually only allow for a maximum of $3,000 to be charged due to fees they have to pay which cuts into their margins.

THE BIGGEST RISKS TO HAVING MULTIPLE CREDIT CARDS

I’m a big advocate of less is more when it comes to credit cards. Let me explain why I recommend keeping the number of credit cards you have to three or less.

1) The Temptation To Spend More The More Credit Cards You Have. If you have a budget of $1,000 a month to spend on your credit card(s), it’s much easier to limit spending on one card compared to limiting spending with five cards. Your mind automatically starts thinking about the various custom rewards points for each card and you charge accordingly just a little more than you should. If you charge even $100 more on average between your five credit cards, you’ve gone 5% over budget for the month. Compound the over budget amount over the year and just like that you’ve got $1,200 more in credit card expenses or debt that needs to be paid off. We can’t help but think of each credit card as one powerful spending tool with its own APR rate, fantastic benefits, and multi-thousand dollar credit limits.

Derivative Explanation: I threw a potluck at my house for 20 confirmed guests one year. One of my good friends said she’d make enough spaghetti for 20 people. I told her to just make full portions enough for five people. She looked at me stubbornly and said, “Well what about the other 15 guests?” I proceeded to explain to her that if all 20 guests made enough full-size portions for 20 people we’d have enough to feed 400 people! She didn’t get it and insisted to bring massive pots of sauce and pasta. At the end of the party, she had to lug both massive pots still full of pasta and sauce home. The lesson here is that we get confused with how much we can spend the more spending vehicles we have.

2) Incremental Rewards Diminish. Unless you are a billionaire, you only have so much money to spend a month. Let’s say your budget is $3,000 a month and you go from one rewards credit card to three rewards credit cards: one for travel, one for entertainment, and another for online shopping. You must now calculate the incremental rewards you’ll earn, given you would have received rewards if you put everything on your one and only credit card anyway. Once you calculate the incremental rewards received, you realize the benefits aren’t that much at all since you are not spending 3X more by have 3X more cards. And if you are spending above your $3,000 budget that’s no good either.

Derivative Explanation: One friend started bragging about how his investment portfolio was up 18% in 2013. That’s a great return for anyone, but guess what? The S&P 500 index is up 18% as well! In other words, my friend created no alpha. All the time he spend researching and picking stocks was a waste since he could have just bought the S&P 500 ETF SPY and kicked back all year. To maximize your rewards from each card you’ve got to meticulously deploy your usage. Otherwise, you’re weighing down your finances with distractions. Real investors create alpha. Otherwise, you’re just a saver. Read: Are You A Real Investor If You Create No Alpha?)

3) Higher Chance Of Getting Into Debt. Credit cards have the highest interest rates for mass consumer lending other than payday loans. With the 10-year interest rate at 3%, the average credit card interest rate is roughly 15%. A 5X spread is enormous! No wonder why millions of credit cards are issued annually. When you have more temptation to spend with more credit cards in your wallet, you will inevitably increase your chance of accumulating credit card debt. Just like how we don’t bring alcoholics to bars, we shouldn’t arm consumers who have a proclivity to overindulge on anything with more credit cards. Undisciplined spending and high interest rates compounded over time have a devastating effect on your wealth. (Read: The Reality Of How People Get Into Debt – It Just Creeps Up!)

Derivative Explanation: There’s a great study that showed a 30% increase in spending per customer once McDonald’s started accepting credit cards. One frugal friend I know went from buying two $1 McDoubles for lunch twice a week in cash to buying two $4 Filet O’Fish sandwiches and a large Coke three times a week for the next two years. He no longer plays singles because he went from a svelte 165 lbs to 200 lbs and admitted he’s got revolving credit card debt attributed to his fast food addiction.

4) Burden On Your Credit Score. We learned in my article on how to get a 800 credit score or higher that the Amount Owed accounts for 30% of your credit score calculation, while New Credit accounts for 10% of your credit score calculation. Nobody knows exactly how many credit cards is too many, but one can imagine that after five credit cards, opening up another credit card at the margin will likely hurt your credit score, or at least not help your credit score. Sure there are plenty of examples of people who have eight credit cards and still have good credit scores. But perhaps they would have even better credit scores if they only had three credit cards.

Derivative Explanation: After three gin and tonics, I’m feeling good. After 10 gin and tonics, please dial 911 and pump my stomach before I die.

FOCUS ON BIGGER PICTURE FINANCIALS

Applying for multiple credit cards all the time is an unhealthy use of time. It’s like the person who always focuses on the emergency fund and not on ways to make more money. They never take their personal finances higher because they’re focused on kindergarten basics.

Everyone should have at least one rewards card given the benefits of travel insurance, rewards points, ease of use, and free interest for 30 days. My Citicard of nine years is now gathering dust given I want double points on everything with my Barclaycard. If I didn’t have a business, I wouldn’t have a third credit card. I understand the allure of credit card churning for benefits. Just be careful not to churn so much that your credit score gets busted up and you’re caught in a negative debt cycle.

Spend your efforts instead on building passive income streams and making more money. If you don’t have a highly addictive personality, one to three credit cards is the ideal number for optimal financial health!

CREDIT CARD RECOMMENDATIONS

Check Your Credit Score: Take a moment to check your free TransUnion credit score through GoFreeCredit.com, a company I trust. 30% of credit reports have errors, which could put a serious hamper on your refinancing or new loan borrowing abilities. I had a $8 late payment I didn’t even know I owed crush my score by 100 points come up during my last refinance. The average credit score for rejected mortgage borrowers has risen to 729 due to more stringent lending requirements. Do you know what your score is?

Up to date as of 10/24/2014

Regards,

Sam

Sam started Financial Samurai in 2009 during the depths of the financial crisis as a way to make sense of chaos. After 13 years working on Wall Street, Sam decided to retire in 2012 to utilize everything he learned in business school to focus on online entrepreneurship.

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Comments

  1. Carlos says

    I have 20+ because I take advantage of the sign up bonuses.

    Yes I think an extremely high % of the public can not handle credit cards.

    Credit card rewards can lead to higher spending for the rewards themselves, but it is the person’s own duty to not allow that to happen.

    The ideal number of credit cards for optimal financial health will vary person to person depending on their lifestyle preferences, how responsible they are, and how efficiently they manage their finances.

    As long as payments are made on time and balances are always paid in full I see no problem having double digits. I have 20+ open, my credit score hovers just under 800. Each month I pay everything off. It doesn’t take much time to manage using Google Cal for alerts and a spreadsheet for my CC history.

    If someone does not own a home I do not recommend such since it will be harder to be approved for a nice mortgage; if you will pay outright it doesn’t matter.

  2. says

    I only have one credit card, but I’ve been considering opening up a second. I don’t use my credit card much, but the one I have has an extremely low limit. I got the card in college, didn’t bother to ask for the limit to be raised for four years and even though they’ve “doubled my limit” twice, it’s still pretty weak.

    If I had to book a really expensive flight/hotel rooms for work it would probably max out.

  3. Insourcelife says

    I think I have 6-8 cards, which reminds me I should close a couple. My wife has at least 4 as well. We don’t increase our spending because of credit cards and the large number is due to churning them for sign up bonuses as $2,000 or so extra per year is a pretty nice return on a few hours of work. I usually use just one card for daily purchases and only use the other ones in the beginning to meet spending requirements for a bonus. A credit card game can bring in a nice chunk of change and a great work/reward ratio if done right!

  4. says

    We have 3, a visa, a discover, and an Amex will complementary rewards programs. Actually that’s not 100% true. We also each have the first card we ever signed up for, but those are locked in the safe and never used. Mostly left open for “average account age” boosts, so I always forget they exist.

    I think churning and keeping track of spending across multiple cards has gotten easier with tools like mint, but we’re pretty happy with the set up that we have and aren’t in a hurry to churn cards.

  5. Ken says

    I agree with Carlos. I have 15+ cards right now and usually over 20, but I had to thin the herd to avoid some annual fees I couldn’t get waived or I needed to cancel to be able to get some rewards again in the future.

  6. says

    My best advice is to maintain no credits cards — debit cards with solid 5-digit balances are the way go instead — the only credit card you might consider is a credit card issued to you by your employer that the employer pays on your behalf — however, credit cards are for losers — make no mistake about that to avoid problems in your life.

    • says

      I don’t think this is good advice at all. Maybe its not that credit cards are for losers, but losers can’t handle having a credit card. That’s a bit harsh, but anyone who has a grasp of financial responsibility should absolutely have a credit card and use it often. I receive several hundred dollars a year worth of cash back/rewards benefits from my credit cards & had my flight and hotel for a recent trip completely paid for with them. If you’re smart with your money you’d be missing out by not using a rewards card. If you can’t handle paying your bills, then you can’t handle a credit card. But I don’t think the blame there lies with the card.

  7. Ace says

    I think credit cards are dangerous for many people. It makes it too easy spend because you don’t actually see the money.

    And the interest rates are outrageous! I wish I had investments which consistently returned 18 to 20% a year.

    I have two…. A Visa in which I never keep a balance and an AMEX which I basically never use.

  8. says

    I have 5 credit cards, but I only use 2 of them. Well, only 1 for the most part. I have an Amex that I do about 99% of my total spending on (&obv pay off every month) and then a Visa for the rare time that Amex isn’t accepted somewhere. The other cards are older cards that I’ve simply been too lazy to cancel.

  9. says

    I have many credit cards. Applying for new cards will ding you for inquiries but it will increase your debt to limit ratio. It could hurt your average age of credit, but the big bonus rewards are nice. It doesn’t take much to keep track of it and the bonus is nice for almost no work.

  10. says

    You’ve given me food for thought, Sam, so thank you. I am currently trying to churn cards (one at a time, at least) to gain sign-up bonuses. So currently I have three (Amex Blue Preferred for groceries & gas, Chase Freedom for 5% revolving, and the Starwood Preferred, churning for hotel rewards). I’m pretty happy with the number but I should probably sit down and think about the risks you noted, and see if the juice is really worth the squeeze.

  11. says

    Good post Sam! We just started churning cards a bit this year, including the Barclaycard and each have 4-5 cards. That said I believe we use 1-2 cards regularly after getting the bonuses. We’re funding the FinCon trip and a vacation in January off of them. Earning those free trops can be addicting. This coming from someone who graduated from college with $25K in credit card debt.

    That said, I don’t think it’s the credit card that’s the issue – it’s the addiction to spending that’s the real issue. If you can’t keep that under control then having ready access to credit cards will be like that plate of cookies to someone wanting to lose weight – it simply won’t happen. I don’t know if there’s a “healthy” number to have, but if you can manage them and not get into debt then go for as many as you can handle wisely.

    I’ve been on both ends of the extreme in terms of credit card usage and now that I am 10+ years of being clean I view it as just being wise about the usage, regardless of the number you have.

  12. says

    3 for me.

    Low limit cash back Visa that my sons away at school share with me. This is for emergencies and charging online stuff.

    MasterCard for the big purchases such as house insurance and the dreaded dentist. Grocery store points mean Christmas dinner will be free again this year.

    $16,000 combined credit.
    Costco Amex because their gas and toilet paper are cheap and the rewards are good.

  13. Ricky says

    Can’t say I agree. I have 9 and hardly ever have revolving debt and if I do it’s something that I would have bought anyway and, like you said, take advantage of the no interest period. Why not sign up for free stuff all of the time? I have made at least $200 in the past 6 months by signing up and doing what I would have done anyway. Every card has a different purpose and I make sure there is no overlap. I have never paid any interest to any card company and know I never will.

    So in my case I will say more cards doesn’t mean more spending. I just recognize the benefit to signing up and getting the bonus and receiving rewards for different things at different times. The margin of benefit is actually quite worth it most of the time. For instance, Chase Freedom and Discover offer revolving 5% CB categories every quarter and they are always different. Sometimes they will offer 5% off in gas or restaurants simultaneously, but not concurrently. I’m those cases, I am making 5X back what I would have had I not had both cards.

    Would I recommend my setup for the general consumer? Absolutely not.

      • Ricky says

        I just realized I had way more cards than what I said… and had actually made way more money. I’m not proud of that fact though. I definitely need to clip some up and I will admit this article is an inspiration to do so because it is true that its too hard to actually get any significant return without concentrating usage to a few cards.

  14. Anne says

    I only had 2: AMEX from signing up to get bonus points back 6 years ago, and Citibank platinum (no annual fee, with free travel insurance etc..) which usually is AU$200/year. The AMEX was there just incase the Citibank card could not be used, but over the last 6 years, i only used it once. So i closed it down. The Citibank one earns reward for every $20,000 i get $100 back , i just take cash back credit to the account as i don’t need/want to buy anything else. Never pay any interest ever. For me it is handy, however, more and more merchants now charge 1.5% fee for using credit card, so i use Debit card more now. I think it is self disciplined and also i don’t spend by nature, so even if i have 10 credit cards, it would not be a problem for me at all.

  15. MH says

    I have 2 cards in my wallet, a Fidelity Investments Reward Card and a Macy’s card. I get 2% back from every purchase with no limits on the former, and the latter allows me to get better deals when I am forced to buy new clothes. Naturally, I always pay the entire balance every month.

    I’m wondering though, do things like store credit accounts count as credit cards? For example, I bought the wife some jewelry and Tiffany & Co, and I did the thing where I put down 25% and pay the remainder off over six months (0% if paid in full over that term). Does that count as a credit card or line of credit (or whatever, show up in your credit report), even though I don’t actually have a physical card?

  16. says

    I have 2 cards that my wife is also on, an Amex with 2% cash back, and a Mastercard with 1% cash back. My wife also has a Discover card she uses for “gifts.” The charges are less than $100 a month, so I don’t worry about it. She also opened a Disney Visa card to get some sort of huge intro discount on a cruise. It does not get used except for small charges now and then to keep it alive.

  17. says

    I agree that too many cards will affect your spending! It is just too difficult to keep track of everything. Everyone has a different limits though. Some can handle 5 cards and still many others perhaps none. If your goal is to pay the entire balance every month, you should catch on the first month. Unfortunately, that is too late and they spiral down fast!

    • david M says

      I see no need “to keep track of everything”. I put all my cards on autopay – thus no chance of things spiraling down fast.

      However, I can see how it could happen to someone that does not have ample cash that will allow them to pay all of there charges off in full on a monthly basis.

  18. says

    Great post, but I really don’t think that credit cards lead to overspending. They may help a little, but the primary cause is the person’s attitude. If credit cards didn’t exist, they would obtain loans. If loans didn’t exist, they would borrow from friends and family.

    I have many credit cards for rewards but, because its ingrained in my mentality, I have absolutely no desire whatsoever to spend more than I usually would on any of these cards.

    Credit cards can be a great tool to build wealth through rewards, cashback and an improvement of one month’s cash flow. However, if the worker doesn’t know how to use the tool (or messes around with it), it suddenly becomes a lot more dangerous.

  19. Thomas S says

    I have 4 cards, but been thinking of signing up for several more to get some nice sign up bonuses. Have not really looked at sign up bonuses but been looking more at continued rewards. Currently have a Chase Freedom, Discover, Citi & Williams Sonoma (credit not store card). I get my biggest rewards from Discover, I get 5% back on every Office Depot Purchase I make for work.

  20. says

    I have a bit of cards but because of different card merchants (Amex vs Visa) and different rewards schemes. IE Until PenFed changed their policy, I loved their at-the-time no-fee card that automatically gave me 5% cash back on gas. So I just used that card for gas. Same thing for another card that gives me 2x points on groceries. Then there’s the everyday Delta Amex we use for most purchases. For people who aren’t organized and disciplined with money, I do not recommend this, but if you want to get the most for spending you already do, I recommend having more than one no-fee rewards card (plus your regular fee-based rewards card) if you qualify and pay the balance in full each month and the rewards are worth it to you.

    I also churn cards with my husband so we currently have an SPG Amex we’re churning to get the 30,000 points.

    Plus, I have my old Discover card and another old credit card I’ve had opened since college and while I don’t use (except for the occasional small purchase that is paid off immediately), I don’t want to cancel being that they’re two of my oldest cards on my credit record.

    • Lindsey says

      If you have decent credit, it’s easy enough to find no-fee rewards cards, so I wouldn’t recommend a fee-based one. Those are only useful if you have high spending levels such that your rewards pay the fee. But for a lot of people, that’s not the case, and you won’t want to encourage extra spending.

  21. says

    I have three credit cards but really only use two of them. I can’t be bothered with more credit cards than that. I like keeping things simple. Fewer bills to pay and more reward points on the same cards.

  22. FatChance says

    Sam, I am getting on a plane today to go to DC. I was reading your post and had to check my wallet to see how many cards I have and I do not have even one cc in there. I know I have had 10-15 cards over the last several years as that is what is listed on my credit score. But I have only actually used x 2 in the last 5 years and have not used a cc in 8 months or so, apparently even to the point where I do not even carry them. I need to dig at least x 1 out before I get on the plane for security reasons (hate to be away from home and rely only on a debit card in case of emergency).

    I stopped trying to get points, even travel points, on rewards cards as I found I was spending 20-30% more to get a 2% reward. I found it was best, for me, to just pay cash and try to keep expeditures to a minimum.

    The friend I travel with the most uses one rewards card and has no problem letting me know I am not optimizing my spend as I do not get as manay rewards as he does. It is a good conversation and one we have had in several countries. For now, I am staying away from credit.

    P.S. I love the Derivative Explanation thing. You have a great, very entertaining, writing style.

      • Fatchance says

        Yeah, debit.
        Like you, I travel to Europe and I always carry a credit card on international trips for emergency but have not used it recently. I do carry a lot of cash which makes the wife nervous. Oh well, there are always trades offs right?

  23. Michelle says

    That opener was so funny :-)

    I have three credit cards. I used to only have one, but I opened a gas card and a travel rewards card earlier this year. I use the reward card and pay off the balance each month because I am allergic to the interest rates.

    I did have to reel in my “spending for rewards” after the first few painful balances.
    Now, I use a budget app to help me keep track of my spending, earnings, and savings – a great tool for us “general consumers” sincerely interested in attaining financial freedom too. Turns out, watching my savings increase is a lot more rewarding than travel points earned from spending.

  24. says

    I have 10 or 15, but only b/c I used to chase those promotions and the 0% when I needed it. No need to cancel them or even carry them on me, just use Amex for the exact reasons you mentioned.

  25. Lindsey says

    Your statements about credit scores are just wrong. Your credit score is affected negatively by having too many cards. It is affected negatively if you have a low average age of accounts (if you open new cards every year, your average age of accounts doesn’t increase nearly as much as it would otherwise each year). It also is affected negatively if you have a high “utilization.” That means that it’s affected negatively after you start going above 10% of your available credit. So if you have $5,000 in credit limits, as soon as your statement is over $500, you start seeing a bit of a negative effect. The closer you come to $5,000, the worse. If your monthly spending is $1,000 and you only have one credit card with a $5,000 limit, this could be a problem. If you have $100,000 in credit card limits, staying under 10% is easy. A lot of people open more credit cards for two reasons: 1) rewards, 2) helps overall utilization. (It is important to know that you should never go over 10% on one individual card either, but being over 10% on just one card out of many is not as bad as being over 10% across all your accounts.)

    For the sort of person who is easily tempted by available credit, getting more credit cards is always a bad a idea. So some of your advice is good. But it’s incorrect to say that having more credit cards hurts your credit score. That’s only true if you’re utilizing them too much.

  26. Lindsey says

    Ugh, typo. Your credit score is NOT affected negatively by having too many cards.

    As a second note, the “free credit scores” available on the internet can be helpful to see trends, but they give no real indication of what your credit score is. It’s a completely different score than what is given to lenders.

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