It all depends on how you use credit and what makes sense for your financial life.

16 minute read

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Hey everyone. I’m Laura Adams and you’re listening to the money girl podcast. If you’re new here, welcome, I’m really thrilled that you’ve downloaded the show that you found us.

You’ve been listening to the show for decades. Maybe you’ve even been with me since 2008. When I started hosting the show. I’m thrilled that you’re here as well. Uh, you probably know I’m a personal finance author spokesperson, consumer advocate, and I would love for you to subscribe if you’re new to the show. So you don’t miss a weekly episode. We publish every Wednesday and I cover a wide range of personal and small business topics, such as building credit, dealing with debt, investing retirement, real estate taxes, insurance, money management strategies, and lots more. So if you’ve stumbled on this show, because you’re looking for more knowledge or resources, even motivation to manage money better, you are definitely in the right place. And you’ll find the notes for this and every show with any links to resources that I mentioned and the full information it’s all in the money girl section [email protected] today’s episode is 660 called how many credit cards should you have for good credit?

If you’ve been a short or a long time money girl, podcast listener, I definitely don’t have to tell you about the fantastic benefits of having excellent credit. You know, that the higher your credit scores, the more money that you can save on various products and services such as credit cards, lines of credit, car loans, mortgages, and even on insurance in most States. But even if you never borrow money, your credit is so important because it affects other areas of your financial life. For example, having poor credit could cause you to get turned down by a prospective employer or by a landlord. It could also increase the security deposits that you must pay on utilities, such as power, cable, and mobile devices. Credit cards are one of the best financial tools available for building or even maintaining excellent credit scores. But you might be wondering exactly how many should I have?

Do I need one? Do I need a bunch? What’s the right number. So in this podcast, I’m going to help you understand how cards boost your credit and the optimal number for improving your finances. It’s a little different for everybody. Uh, and I think a common misconception about credit, in general, is that if you have no debt, you must have good credit. Well, that’s not true. That is utterly false because having no credit is the same as having bad credit to have good credit, you’ve got to have credit accounts and you have to use them responsibly. So before we talk about how many cards you should have, we first need to review some essential tips and strategies for using them the right way. That information will help you understand the optimal number for your situation. So we’re going to cover five tips for using credit cards to build credit.

And then we’ll kind of circle back to this idea about what’s the optimal number. So the first tip is you have to make payments on time, even if it’s just the minimum payment, making timely payments on credit cards or any of your credit accounts is the most critical factor for your credit scores. Your payment history carries the most weight because you know, it’s obviously an excellent indicator of your financial responsibility and ability to pay what you owe. Having a credit card allows you to demonstrate your creditworthiness by merely making payments on time. Even if you can only pay the minimum monthly amount if the card company receives your payment by the statement due date that builds a history of positive information on your credit reports. Now I recommend paying more than your card’s minimum. Ideally, you should pay off your entire balance every month. So you don’t accrue interest charges. When you do that, when you pay off the card, you’re using the card for free. And so it doesn’t even matter what the interest rate on the card is because you’re never paying it. If you pay off your balance in full each month. Now, if you tend to carry a balance from month to month, it’s really wise to use a low-interest credit card to reduce that financing charge

Tip number two, don’t rely on being an authorized user. Many people start using a credit card by becoming an authorized user on someone else’s account, such as a parent’s credit card that allows you to use a card without being legally responsible for the debt. Some card companies report a card owner’s transactions to an authorized user’s credit report.

So that could be an excellent first step for establishing credit. If the owner of the card, the primary card owner makes his or her payments on time, even. So some credit scoring models ignore data that does not belong to a primary card owner. Therefore don’t assume that being an authorized user is a rock-solid approach to building credit. I recommend that you get your own credit cards as soon as you earn income and can get approved. Tip number three, never max out cards, a critical factor that affects your credit scores is how much debt you owe on revolving accounts and revolving accounts or credit cards and lines of credit that will always stay open.

The match you owe on those accounts compared to your total available credit limits. This is known as your credit utilization ratio, and it gets calculated per account. And on all of your accounts on an aggregate of like your portfolio of credit accounts, having a low utilization ratio shows that you use credit responsibly by not maxing out your accounts, a high ratio indicates that you use a lot of credit. And in general, creditors, don’t like to see that because that could be a red flag that you’re in danger of missing a payment soon, or maybe that you’re going through some financial hardship. So a good rule of thumb is to improve your credit scores by keeping your utilization ratio below 20%. Now that’s not a hard and fast rule. It’s just kind of a guideline, you know, the lower, the better, but still, you do have to have some amount of utilization.

As I mentioned in order for the car to be active and to have positive information. Let me give you an example, uh, to just demonstrate the credit utilization ratio. Let’s say you’ve got a thousand dollar card balance and you have a $5,000 credit limit on a card in that situation, you’ve got a 20% credit utilization ratio. So the formula is a thousand dollar balance divided by a $5,000 credit limit. That’s 0.2 or 20%. As I mentioned, that’s about as high as I would recommend. Now, if you go over that just a little bit from time to time, that’s no big deal, but again, in general, you want to maintain 20% or less. There’s a common misconception that it is okay to max out a credit card. If you pay it off in full each month. Now, while paying off your card in full is very smart.

And as I mentioned, that’s the way to avoid interest charges. That doesn’t guarantee that you’re going to have a low utilization ratio. Why? Well, the date that your credit card account balance gets reported to the nationwide credit agencies typically is not the same as your statement due date. So if your outstanding balance happens to be high on the date that it gets reported to the Credit Bureau, you’re going to have a high utilization ratio that will drag down your credit scores. So again, even if you’re paying off that balance in full, when you go over that 20% ratio, you’re still in danger of looking like you’ve got too much of a ratio. So be mindful, never to exceed that recommended 20% threshold. Even if you plan on paying off the card immediately, right now, businesses across the globe are challenged to be more efficient than ever, which means hire is critical.

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Off, tip number four, use multiple cards. If you need more available credit to cut your utilization ratio, there are some easy solutions. One is to apply for an additional credit card. So you spread out charges on multiple cards instead of consistently maxing out one card that reduces your credit utilization and boosts your credit. For example, let’s say you’ve got two credit cards and each has a $500 balance and each has a $5,000 credit limit. You now have a 10% credit utilization ratio.

The formula is a thousand dollar balance. That’s two cards each with $500. So a thousand dollars balance divided by a $10,000 credit limit because each card gives you 5,000. So a thousand divided by 10,000 is 0.1 or 10%. That’s half the ratio of my previous example with one card. So again, getting two cards spreading out those balances can cut your utilization ratio in half, and that will definitely improve your credit scores. Another strategy to cut your utilization ratio is to request credit limit increases on one or more of your cards, having the same amount of debt compared to more available credit instantly reduces your utilization and improves your credit.

Tip number five, keep credit cards, active credit card company.

These are in business to make a profit, right? So if you don’t use a card for an extended period, they can actually close your account or even cut your credit limit. You may not mind having a card canceled if you haven’t been using it. But as I just mentioned, your available credit plays a very big role in your utilization ratio.

If you have a cut in your credit limit, that actually means bad things are coming for your credit scores, lower credit limits mean that you’re going to look riskier and therefore your scores are going to go down. So no matter if you or a card company cancels one of your revolving credit accounts, it causes your total amount of available credit to shrink, which instantly spikes your utilization ratio. And as we’ve said, when your utilization goes up, your credit scores can plummet.

Anytime your credit card balance has become a higher percentage of your total credit limits. You appear riskier to creditors, even if you aren’t. So keep your cards open and active, especially if you’re considering a big purchase such as buying a home or a car within the next six months.

In general, I recommend that you charge something small and pay it off in the fall several times a year. Maybe like once a quarter in order to keep a card active and keep your available credit limit in place. If you have a card that you don’t like, maybe because it charges an annual fee or it’s going to high APR, don’t be afraid to cancel it. And you just need to replace it with another card. Ideally, before you cancel the first one that allows you to swap out one credit limit for another and avoid a significant increase in your credit utilization ratio.

So I haven’t gone through these tips helps you understand why maybe having one credit card isn’t enough for you. Now I will say, if you got a bunch of cards and you’re just determined to get rid of them, you know, kind of pare down what’s in your wallet. I get it a tip to do that wisely would be to space out your cancellation over time.

So maybe just cancel one card every six months or even once a year in order to minimize that negative effect on your credit scores. Now that you understand how credit cards help you build credit, let’s consider how many you really need the optimal number for you. Depends on various factors, such as how much you charge each month, whether you use rewards, and how responsible you are with credit. According to Experian, which is one of the nationwide credit bureaus, 61% of Americans have at least one credit card.

And the average person owns for having more open and revolving credit accounts makes you more likely to have higher credit scores. If you manage those accounts responsibly, as I mentioned, having more available credit compared to your balances on revolving accounts is a crucial factor in your credit scores. So if you continually bump up against that 20% utilization ratio that I’ve mentioned many times, you likely need an additional card.

Also consider how different credit cards can help you achieve financial goals, such as saving money on everyday purchases, that you’re already making many retailers, big box stores and brands have cards that reward your loyalty. They’ll give you discounts, promotions, and all kinds of additional services. If you use one of their credit cards, I use multiple credit cards. I don’t even know how many I have right now. I think it’s about 10 and it’s based on the benefits and rewards that I receive from them.

For instance, I only use my Amazon credit card to get 5% cashback on my Amazon purchases. I have a card with no foreign transaction fees that I use when traveling overseas. So obviously I haven’t used that one in a while, but I’m going to hang onto it and make sure that it’s active.

And I’ve got a low-interest card, probably a couple of low-interest cards that I use only if I plan to carry a balance on a large purchase for a short period of time. So think about how different cards can help you achieve different spending goals, the rewards that they have, that you’re using, and be strategic about having different cards for different purposes. There’s no limit to the number of cards you can or should have. Theoretically, you could have 50 credit cards and have great credit if you manage all of them responsibly, but a recommendation will be to have a minimum of two cards.

So you have a backup. If something goes wrong with one of them and have as many cards as you believe will benefit your financial life and are comfortable managing successfully. And if you’re interested in learning more about using credit cards for your small business or work as a solo check out my new book, it’s called money, smart, solopreneur, a personal finance system for freelancers entrepreneurs, and side hustlers.

I am so excited that it’s been an Amazon number one new release. And now you can. Pre-order the audiobook version, which launches on December 8th, but it’s for pre-order right now at Amazon and audible. And I think a few other places. So wherever you get your audiobooks, please check it out again. It’s money smart, solopreneur. That’s all for now. I’ll talk to you next week until then here’s to living a richer life. Money girl is produced by the audio wizard, Steve Ricky Berg with editorial support from Karen Hertzberg. If you’ve been enjoying the podcast, please rate and review it on Apple Podcasts.

Take a moment to do that right now. If you haven’t previously submitted a review, it’s such an easy way to give back and show your support. We really appreciate all of your reviews and it really does help new listeners find us. And then after you do that, you might like the backlist episodes and the show notes that are always [email protected]

Have you ever wondered, “How many credit cards should I have? Is it wise to have a wallet full of them? Does having multiple credit cards hurt my credit score?”

If you’ve been following this blog or the Money Girl podcast, you know the fantastic benefits of having excellent credit. The higher your credit scores, the more money you save on various products and services such as credit cards, lines of credit, car loans, mortgages, and insurance (in most states).

Even if you never borrow money, your credit affects other areas of your financial life.

But even if you never borrow money, your credit affects other areas of your financial life. For instance, having poor credit may cause you to get turned down by a prospective employer or a landlord. It could also increase the security deposits you must pay on utilities such as power, cable, and mobile plans.

Credit cards are one of the best financial tools available to build or maintain excellent credit scores. Today, I’ll help you understand how cards boost your credit and how many credit cards you should have to improve your finances.

Before we answer the question of how many credit cards you should have in your wallet, it’s important to talk about using them responsibly so you’re increasing instead of tanking your credit score.

5 tips for using credit cards to build credit

  1. Make payments on time (even just the minimum)
  2. Don’t rely on being an authorized user
  3. Never max out cards
  4. Use multiple cards
  5. Keep credit cards active

A common misconception about credit is that if you have no debt you must have good credit. That’s utterly false because having no credit is the same as having bad credit. To have good credit, you must have credit accounts and use them responsibly.

Having no credit is the same as having bad credit.

Here are five tips for using credit cards to build and maintain excellent credit scores.

1. Make payments on time (even just the minimum)

Making timely payments on credit accounts is the most critical factor for your credit scores. Your payment history carries the most weight because it’s an excellent indicator of your financial responsibility and ability to pay what you owe.

Having a credit card allows you to demonstrate your creditworthiness by merely making payments on time, even if you can only pay the minimum. If the card company receives your payment by the statement due date, that builds a history of positive data on your credit reports.

2. Don’t rely on being an authorized user

Many people start using a credit card by becoming an authorized user on someone else’s account, such as a parent’s card. That allows you to use a card without being legally responsible for the debt.

Some credit scoring models ignore data that doesn’t belong to a primary card owner.

Some card companies report a card owner’s transactions to an authorized user’s credit report. That could be an excellent first step for establishing credit … if the card owner makes payments on time. Even so, some credit scoring models ignore data that doesn’t belong to a primary card owner.

Therefore, don’t assume that being an authorized user is a rock-solid approach to building credit. I recommend that you get your own credit cards as soon as you earn income and get approved.

3. Never max out cards

A critical factor that affects your credit scores is how much debt you owe on revolving accounts (such as credit cards and lines of credit) compared to your total available credit limits. It’s known as your credit utilization ratio, which gets calculated per account and on your accounts’ aggregate total.

A good rule of thumb to improve your credit scores is to keep your utilization ratio below 20%.

Having a low utilization ratio shows that you use credit responsibly by not maxing out your account. A high ratio indicates that you use a lot of credit and could even be in danger of missing a payment soon. A good rule of thumb to improve your credit scores is to keep your utilization ratio below 20%.

For example, if you have a $1,000 card balance and a $5,000 credit limit, you have a 20% credit utilization ratio. The formula is $1,000 balance / $5,000 credit limit = 0.2 = 20%.

4. Use multiple cards

If you need more available credit to cut your utilization ratio, there are some easy solutions. One is to apply for an additional credit card, so you spread out charges on multiple cards instead of consistently maxing out one card. That reduces your credit utilization and boosts your credit.

Having the same amount of debt compared to more available credit instantly reduces your utilization and improves your credit.

For example, if you have two credit cards with $500 balances and $5,000 credit limits, you have a 10% credit utilization ratio. The formula is $1,000 balance / $10,000 credit limit = 0.1 = 10%. That’s half the ratio of my previous example for one card.

Another strategy to cut your utilization ratio is to request credit limit increases on one or more of your cards. Having the same amount of debt compared to more available credit instantly reduces your utilization and improves your credit.

5. Keep credit cards active

Credit card companies are in business to make a profit. If you don’t use a card for an extended period, they can close your account or cut your credit limit. You may not mind having a card canceled if you haven’t been using it, but as I mentioned, a reduction in your credit limit means danger to your credit scores.

A reduction in your credit limit means danger to your credit scores.

No matter if you or a card company cancels one of your revolving credit accounts, it causes your total amount of available credit to shrink, which spikes your utilization ratio. When your utilization goes up, your credit scores can plummet.

Anytime your credit card balances become a higher percentage of your total credit limits, you appear riskier to creditors, even if you aren’t. So, keep your cards open and active, especially if you’re considering a big purchase, such as a home or car, in the next six months.

If you have a card that you don’t like because it charges an annual fee or a high APR, don’t be afraid to cancel it. Just replace it with another card, ideally before you cancel the first one. That allows you to swap out one credit limit for another and avoid a significant increase in your credit utilization ratio.

If you’re determined to have fewer cards, space out your cancellations over time, such as six months or more.

How many credit cards should you have to build good credit?

Now that you understand how credit cards help you build credit, let’s consider how many you need. The optimal number for you depends on various factions, such as how much you charge each month, whether you use rewards, and how responsible you are with credit.

There’s no limit to the number of cards you can or should have if you manage all of them responsibly.

According to Experian, 61% of Americans have at least one credit card, and the average person owns four. Having more open revolving credit accounts makes you more likely to have higher credit scores, but only when you manage them responsibly.

As I mentioned, having more available credit compared to your balances on revolving accounts is a crucial factor in your credit scores. If you continually bump up against a 20% utilization ratio, you likely need an additional card.

Also, consider how different credit cards can help you achieve financial goals, such as saving money on everyday purchases you’re already making. Many retailers, big box stores, and brands have cards that reward your loyalty with discounts, promotions, and additional services.

If you continually bump up against a 20% utilization ratio, you likely need an additional card.

I use multiple cards based on their benefits and rewards. For instance, I only use my Amazon card to get 5% cashback on Amazon purchases. I have a card with no foreign transaction fees that I use when traveling overseas. And I have a low-interest card that I only use if I plan to carry a balance on a large purchase for a short period.

There’s no limit to the number of cards you can or should have. Theoretically, you could have 50 credit cards and still have excellent credit if you manage all of them responsibly.

My recommendation is to have a minimum of two cards so you have a backup if something goes wrong with one of them. Beyond that, have as many as you’re comfortable managing and that you believe will benefit your financial life.

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About the Author

Laura Adams, Quick and Dirty Tips

Laura Adams, Quick and Dirty Tips

Laura Adams is an award-winning author of multiple books, including Money Girl’s Smart Moves to Grow Rich. Her newest title, Debt-Free Blueprint: How to Get Out of Debt and Build a Financial Life You Love, is an Amazon No. 1 New Release. Laura’s been the writer and host of the popular Money Girl Podcast, a top weekly audio show in Apple Podcasts, since 2008. She’s a frequent source for the national media and has been featured on most major news outlets including NBC, CBS, ABC FOX, Bloomberg, NPR, The New York Times, The Wall Street Journal, The Washington Post, Money, Time, Kiplinger’s, USA Today, U.S News, Huffington Post, Marketplace, Forbes, Fortune, Consumer Reports, MSN, and many other radio, print, and online publications. Millions of readers and listeners benefit from her practical financial advice. Her mission is to empower consumers to live richer lives through her podcasting, speaking, spokesperson, teaching, and advocacy work. Laura received an MBA from the University of Florida. Visit LauraDAdams.com to learn more and connect with her.

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