Do I Have Too Many Credit Cards?
April 17, 2018 | By Chris Kissell
With multiple cards, consumers can add flexibility but also extra debt.
The typical U.S. consumer is not satisfied with a single credit card. Among households with at least one account, the average shopper holds 3.7 cards in total, according to a 2014 Gallup survey.
"People are frankly taking as much credit as they can get," says Mike Sullivan, personal finance consultant with Take Charge America, a nonprofit credit counseling and debt management agency.
Some consumers enjoy the flexibility of having more than one card in their wallet. But others soon discover that all that extra plastic leads to overspending, says Bruce McClary, spokesperson for the National Foundation for Credit Counseling.
"Having too many accounts can send somebody into an unmanageable financial situation," he says.
Recent Trends in Credit Cards
Before the Great Recession, it was not unusual for shoppers to have as many as a dozen credit cards, Sullivan says. But as the economy sank and credit conditions tightened, Sullivan began to see people with fewer credit cards.
Advances in technology help card companies notice irregularities first
"We went through a period where credit was a little more difficult, and folks were more likely to have just two or three cards," he says.
Today, the economy is on the mend, and people again are opening multiple credit card accounts.
The wisdom of doing so depends on your reasons and what you do with the new credit card once you have it.
A large subset of the population is determined to take on as much credit as possible, Sullivan says. In addition, a significant percentage of such consumers spend all the way up to the credit limit across all their cards.
A 2016 American Consumer Credit Counseling survey found that about 58 percent of consumers had maxed out a card at least once, and 61 percent of that group had maxed out multiple cards.
Doing so puts them at great risk of falling hopelessly into debt. "So, it does frankly frighten me a little bit as I see the numbers [of cards] go up," Sullivan says.
The Risks of Holding Multiple Credit Cards
The mere act of opening a new credit card account modestly hurts your credit score. After a brief period, your score should recover – but only if you use the credit card responsibly.
Unfortunately, people who open additional credit card accounts tend to quickly ramp up their spending, Sullivan says.
"Somebody opens a new credit card, they're likely to use it," he says. "That means they're going to charge more, and that means they are going to take on more debt."
There are also other, less obvious risks to holding multiple cards.
Holding too many credit cards might put you at increased risk of having your personal information stolen in a data breach, McClary says. Signing up for several accounts at different financial institutions can put your sensitive data on multiple databases.
The more places that have your information, the greater your vulnerability to hackers.
"I don't think there's any financial institution that can say with full confidence that they're completely immune from a major data breach," McClary says.
Opening multiple accounts also makes it much easier to spend, even after you have maxed out your original credit card.
"Having two or three other credit cards that have more room to charge gives that person the ability to continue a destructive habit," McClary says.
The Pros of Holding Multiple Credit Cards
Despite these risks, there are times when opening multiple credit card accounts makes sense.
Perhaps the biggest advantage of holding more than one card is the ability to reap the most benefit from multiple rewards programs, McClary says.
For example, some cards offer travel perks, while other cards offer cash-back rewards.
"You may not be able to get all of those features with one card," McClary says. "So it makes sense in those situations to have separate accounts that come with those different types of rewards."
Holding multiple cards also can help you separate expenses – such as using one card for all travel expenses related to your job.
"You may want to separate those accounts so it's easier for you to get reimbursed by your employer with a credit card statement that just includes purchases made for that purpose," McClary says.
Sullivan says a willingness to hold more than one credit card also can help if you are shopping for a first home.
"Most mortgage lenders require you to have at least three trade lines – as we call it in the industry – to have a mortgage," Sullivan says.
Questions to Weigh Before Opening Multiple Accounts
Before you open multiple credit card accounts, ask yourself some key questions, such as:
Can you afford to carry several balances at once?
Before applying for additional credit cards, imagine a situation where you have multiple balances but not enough money to make your payments.
"You have to be able to manage the debt in a worst-case scenario," McClary says.
Losing your job or running into a sudden financial emergency can quickly soak up savings. If that happened, would you be able to make monthly payments on time?
"If not, you need to be asking yourself if there's a better approach to the situation than applying for that full line of credit that you're thinking of," McClary says.
Do you have a lot of experience with credit cards?
If you are new to the world of credit cards, it's much safer to simply open one account, McClary says.
"If you're a young consumer who is just at the age where you can apply for credit independently, start small and start slow," he says.
McClary recommends beginning with one card, keeping it for a while, maintaining a low balance and making payments on time. "If you do those things, you'll build a very healthy credit score that can be used to find another credit product later on that might come with a much lower interest rate and better terms," he says.
Will you use the new card enough to justify applying for it?
It makes little sense to open a new account if the card will just sit in a drawer or at the back of your wallet. That is especially true if the card has an annual fee.
In addition, an unused credit card account is at a higher risk of being closed by the lender, Sullivan says.
"They want you to use the account," Sullivan says. "So they will send you a letter and oftentimes they will encourage you to use the account before they say, 'If you don't use it soon, we're going to close it.'"
If the lender closes the account, it will negatively impact your credit score. And the impact on your score will be even worse if the lender shutters the account because you missed a payment or engaged in other irresponsible behavior.
"That's going to have a big, big impact on your credit," Sullivan says.
Staying Smart with Multiple Accounts
Asking yourself such questions – and answering them honestly – can help steer you away from making a disastrous mistake. However, Sullivan says he rarely sees people perform due diligence before signing up for additional credit cards.
"People are in denial, and in my experience, they almost never ask themselves those questions," he says.
So, Sullivan recommends a simpler system for determining the wisdom of opening a new account.
"The big danger sign – and the thing that everyone should recognize as a sign that you are in trouble – is if you're making the minimum payment," Sullivan says.
If you are not significantly paying down – or paying off – your balance each month, stick with just one card and try to rein in your spending.
Close Extra Accounts Cautiously
Perhaps you already have opened multiple credit card accounts but now regret your decision. If so, use caution when trying to fix your error. Both McClary and Sullivan say closing accounts en masse can be a mistake.
"If you close a large line of credit or too many lines of credit at once, it can tank your credit score," McClary says.
Closing an account with a large credit limit narrows the gap between your overall credit limit and the amount on the balances you still owe. That makes it look like your credit utilization ratio – the amount you spend compared with the amount of credit at your disposal – is spiking.
"Even though it's not spiking because of an increase in spending, it still looks bad," McClary says. "So it can cause your credit score to drop."
Rather than closing out a bunch of accounts at once, McClary recommends closing one and waiting about six months before closing another.
"Understand that even if you don't close them all at once – you just take them one at a time – it's still going to have a negative impact on your credit score," he says.
However, gradually closing your accounts should keep damage to your score minimal and temporary. "You want to be very careful about how you do it," McClary says.