How many credit cards is too many?

Credit cards are a great way to build a credit history and access credit. They offer convenience, flexibility, and good protection in cases of fraud or theft.

However, as with any financial tool, they must be used responsibly.

Two-thirds of UK adults (66.4%) have at least one credit card, and many people have multiple.

This article explores the factors to consider when deciding on the right number of credit cards.

How Do Credit Cards Work?

Credit cards are a form of borrowing allowing you to spend money up to a predefined credit limit.

Each month, you have the option to repay the full balance, a minimum payment, or any amount in between.

However, if you do not repay the full balance, interest charges will apply on the remaining amount, which can be substantial.

Failing to repay your balance can result in your credit score becoming lower. This will affect you when you want to take out a loan in the future, including a mortgage.

Advantages of Having Multiple Credit Cards

Credit Score Advantage

Having more than one credit card allows you to distribute your expenses across different cards, potentially lowering your credit utilization ratio.

This ratio is the percentage of your credit limit that you are currently using, and a lower ratio generally positively impacts your credit score as long as you pay it off on time.
Rewards Schemes

Different credit cards often come with various reward programs, cashback offers, and benefits.

Using multiple cards strategically allows you to take advantage of these perks and get multiple different rewards.

Backup in Emergencies

Having multiple credit cards can serve as a financial safety net or to be used as emergency loans when one card may not be accepted or has reached its credit limit.

However, in cases like this, you could always use your debit card or cash if you have it.

Downsides of Having Too Many Credit Cards

Temptation to Overspend

With multiple credit cards at your disposal, you may be tempted to overspend, leading to higher debt levels and potential stress when it comes time to pay back your credit card bill.

Managing Payments

Handling multiple credit card bills and payment due dates can become complicated and increase the risk of missing payments, leading to late fees and negatively impacting your credit score.

Impact on Credit Score

Applying for multiple credit cards within a short period can lead to multiple hard inquiries on your credit report, potentially lowering your credit score.

Your credit score will recover, but this is something to keep in mind if you are applying for a loan like a mortgage in the near future.

You can check your credit score here for free with the UK government.

How Many Credit Cards Shall I Take Out?

When determining the best number of credit cards to have, consider the following factors:
Income and Stability

Evaluate your income and job stability. Having a few credit cards might be manageable if you have a reliable income and can manage debt responsibly. However, if you are struggling with bills, you might want to wait.

Existing Debts

Adding more credit cards may not be wise if you have existing debts. Focus on paying off your current obligations before considering additional credit. This choice will help you to avoid a debt spiral.

Financial Goals

Assess your financial goals, such as saving for a major purchase or paying off student loans. Your credit card usage should align with these goals.

If you are applying for a mortgage any time soon, remember that making too many credit card applications or failing to pay one credit card bill could cause your credit score to lower.

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