Natasha Macmillan, Business Unit Director - Everyday Banking
When it comes to credit cards, there are universal truths that almost everyone can agree on: a credit card can be an effective tool for building credit; missing a payment is never a good strategy nor is needlessly cancelling a credit card; and paying off your balance in full is the best way to avoid interest charges.
One area where there’s less consensus is on the topic of how many credit cards someone should have. Some believe any more than two is excessive, while others are accustomed to churning multiple credit cards.
The truth is there isn’t one definitive rule about how many credit cards is too many – and the right number largely depends on your personal financial situation and needs.
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How many credit cards should I have?
Have at least one
While there’s no hard and fast rule about how many credit cards someone should have (or how many credit cards are too many), it’s recommended that every adult have at least one.
The reason why comes down to the fact that credit cards play a key role in formulating a strong and diversified credit score. That’s important because everyone from lenders (such as banks) to landlords use credit scores to evaluate if someone is financially reliable and if they should be approved for an application – whether it’s for a mortgage, car loan, personal loan, or rental unit. Your credit score can also impact the interest rate you pay on a loan.
Without at least one credit card tied to your name, credit bureaus have less information about your financial profile and how you manage revolving credit.
Is it bad to have a lot of credit cards?
When it comes to opening a second credit card (or a third or fourth), again, there isn’t a set rule that stipulates having “x” number of cards is wrong. Carrying a combination of credit cards can even be an advantage as it allows you to access rewards and perks from a variety of cards as opposed to those offered by just one.
In terms of your credit score, credit bureaus typically place more weight on factors such as payment history (how reliably payments are made on time) versus the specific number of credit cards that are in your wallet. Simply put, how many credit cards someone has generally isn’t as important as how they’re managed, and – depending on the situation – someone with five credit cards could have a better credit score than someone with two (or vice versa).
Deciding on the right number of credit cards for you is, therefore, largely a personal decision that depends on your current credit score, spending habits, and financial standing.
That being said, there are some guidelines around opening new cards and how multiple credit cards can affect your credit score that everyone should be aware of:
- Opening several new credit cards at once is generally not recommended, as it can result in multiple hard inquiries on your credit report – which can imply risky behaviour. Therefore, it’s always better to build a solid stack of credit cards over time as part of a longer-term financial strategy instead of doing so in one fell swoop.
- Credit history matters, as does experience with using credit cards. If you’re new to cards, it’s suggested that you stick to paying with one or two versus juggling multiple.
- Having more than one credit card can often boost your credit score by decreasing what is known as your utilization ratio. That’s a good thing because generally, a lower utilization ratio is always better.
Utilization ratio refers to the percentage of your total available credit you’re using. For example, if you have a $500 balance on one credit card with a credit limit of $1,000, your utilization ratio is 50% ($500 ÷ $1,000). However, if you have the same balance and carry two credit cards each with a $1,000 limit, your utilization ratio would be 25% ($500 ÷ $2,000).
In most cases, you’ll want a credit utilization ratio below 30%. That’s because credit bureaus and lenders associate those who regularly use up a large amount of their total credit limit as riskier, even if they pay off their balance in full and on time.
- Having multiple credit cards can help to improve your credit mix and provide additional data to credit bureaus about your spending information – two factors that can potentially improve your credit score.
- A credit card application should never be taken lightly or made on a whim. Rather, every application should be based on a calculated decision to either fulfill a need that’s not being met by your current cards or to upgrade your wallet.
- Opening new credit cards can decrease the average length of your credit history, which can have a negative knock-off effect on your credit score. That being said, credit history makes up a minor 15% of your score and a slight decrease in credit history length will likely not have a long-term impact on your overall score.
The benefits of having multiple credit cards
Maximize rewards (or minimize fees) for multiple spending scenarios
By having multiple cards at your disposal, you can be far better equipped to make the most of almost any spending scenario – whether that means pocketing more rewards or saving on fees.
One popular combination includes carrying the following three credit card types at once:
- A travel credit card or cash back card to earn rewards on your everyday spending;
- A no foreign transaction fee credit card to save on fees while making purchases abroad; and
- A low interest credit card to use as a backup, such as when you need to make a major purchase that you suspect will lead you to carry a balance.
Another strategy is to carry a roster of credit cards that offer bonus rewards for different spending categories. A personal favourite cashback combination involves carrying both the CIBC Dividend® Visa Infinite and the SimplyCash Card from American Express. I use the CIBC Dividend Visa Infinite to earn 4% on groceries and gas, and SimplyCash Card to get 1.25% on all my other purchases. By using both these cards in tandem, I earn more cash back every year than I would if I only used one of them exclusively.
Access to more credit
With more credit cards comes more buying power. That can come in handy if you’re in a position where you need to spend more money than usual, like if you have to make large back-to-back purchases or pay for a major last-minute expense.
Back up payment options
Not all credit cards are accepted everywhere. For instance, while the American Express Cobalt is one of the best credit cards in Canada for dining, a number of restaurants do not accept Amex. In this scenario, having another credit card that’s issued by either Visa or Mastercard means you can still use credit as a payment option. The same applies in the case of Costco, which only accepts Mastercard.
Having multiple credit cards can also prove useful in cases when one of your cards is not accessible such as if it’s lost or frozen due to suspicious activity.
Improving credit utilization ratio
Usually expressed as a percentage, utilization ratio is a major component of your credit score and refers to the amount of your total available credit you use (balance ÷ total credit limit across all credit cards). Generally, it’s better to use less than 30% of your available credit limit. One of the fastest ways to lower your utilization ratio is by increasing the amount of credit you have access to by opening a new credit card.
The possible cons of having multiple credit cards
More bills to manage
With multiple credit cards, you’ll have to keep track of different monthly statements – each with their own balance, payment due dates, and interest rates. If you’re new to credit cards and not accustomed to managing different billing cycles, this can make monthly bills considerably more complicated.
More credit can be alluring
It goes without saying that more credit cards means access to more credit. If you’re susceptible to emotional spending or already carrying a balance on your current credit card due to overspending, adding another to the equation may not be the right move financially.
Depending on which credit cards you sign up for, you could end up having to pay multiple annual fees. That may work if you’re maximizing your perks and earning more in rewards than you pay in fees, but that may not be the case for everyone. If you’re looking to add new cards to your financial arsenal, consider also shopping for some no fee credit cards.
On a side note, if you have an older annual fee credit card you rarely ever use, it’s worth contacting your card issuer to ask if the fee can be waived or if it can be swapped with a no fee alternative. That way, you can pick up a new card without being on the hook for multiple annual fees.
Multiple credit card applications can (temporarily) impact your credit score
Every credit card application you make will result in a hard inquiry on your credit report. While these inquiries are not severe and typically only result in a temporary ding to your credit score, when made simultaneously, they can be associated with risky behaviour.
Again, while the impact on your credit score may be temporary, it’s recommended you avoid shuffling around your credit card stack if you plan on making a big financial decision in the near future such as applying for a mortgage.
How many credit cards does the average Canadian have?
While the statistics inevitably vary by survey, the general consensus is that the average Canadian has more than one credit card.
The Canadian Banking Association reported a total of 76 million Visa and Mastercards were in circulation across the country in 2021, which, when factoring Canadians above the age of 18, adds up to about 2.4 credit cards per person.
With all that being said, the number of credit cards you should have should depend on your financial situation, goals and history. It is important to ensure that you can pay off the full balance on every card each month and it can be more difficult to manage to more cards you have.