What happens if you get a peek at a friend's wallet, and they have more credit cards than you? Does it mean that you need to open another account? Here’s how to know if you’re on the right track with how many credit cards you should have.
How many credit cards does the average American have?
Sources vary, with TransUnion claiming that cardholders average 2.69cards each. Those with very good credit scores (a FICO of 800 or more) average three cards per person. There are also a few outliers, including one man who amassed more than 1,400 cards as part of a collection.
Potential impact of having too many credit cards
It may affect your credit score
Having multiple cards alone isn’t enough to change your score, because your score factors in a few behaviors. In fact, having several credit cards with zero balances can improve your score over time. This is because you have a low overall “utilization ratio,” which is your total debt compared to your total available credit.
The danger comes in when you have a high number of credit cards, and you're spending on all of them. A high utilization ratio can make your score go down.It can also hurt your score to have one card charged up almost to the limit, even if you have low credit utilization across all of your cards.
One way to avoid negatively impacting your credit score – no matter the number of cards you own – is to pay at least the minimum balance by the statement due date.
Impact of opening and closing accounts
Opening a new account
Anytime you get a new credit card, you're opening an account. This is good in someways because your utilization ratio will increase. But it can also temporarily hurt your score.
When you’re being considered for a new line of credit, the lender needs to pull your credit history and see that you are worthy of new credit. This credit request is considered a “hard inquiry” in that it shows up on your credit history and can even pull your score down a little. To avoid this, only apply for cards when you need them.
Closing an existing account
Anytime you close a line of credit, your total available credit number goes down. If you owe any money on any of your other cards, your credit utilization ratio may be harmed. This means your credit score could take a hit.
Another danger to closing accounts is that if it’s an older account, its closure decreases the overall age of your accounts. Lenders like to see you with long credit histories. Closing an old, unused account will leave you with only your newer accounts to establish account age. This could cause your score to drop.