I have been an expert in the consumer credit industry for over 25 years and one of the most common questions that I’ve heard over the years is “Is it better to have one credit card or to have multiple cards?”
While there is no black and white answer to this question, I was intrigued by a recent study by Experian claiming that consumers with only one card have lower debt and higher credit scores.
While I wasn’t shocked by the data, I found myself asking several questions related to the study that formed the basis for this article. One question that seemed to resonate is if you have multiple cards, does it automatically mean your score will suffer? Similarly, are there any benefits to having more than one card?
To be completely honest, though, I think the main thing that propelled me to explore the findings of the study more in depth is my own approach toward using cards. If you were to ask my fiancé, I’m sure she would testify that I’m very conservative financially and that I have a very high credit score (not that this impressed her on our first date!).
However, she could also attest that I have had 15+ cards in my wallet for many years and that I benefit financially from these cards. This reality seems to contradict the data presented in the study. And funny enough, one of the main premises of my book entitled “How you can Profit from Credit Cards” is that having multiple cards can be a good thing.
Am I way off base? Or could multiple viewpoints be valid? Before I rewrite my book to make it confirm to the Experian data, let’s consider some alterative perspectives. The goal here is not to discredit the study, but rather to simply offer some other ways of approaching this topic in order to fully educate and empower consumers.
Does having more than one credit card lower your credit score?
While many money experts recommend only having one card, is there any evidence that only having one card significantly helps your credit score? The Experian study seems to suggest this, but the score difference cited in the study is actually pretty negligible according to John Ulzheimer, president of The Ulzheimer Group and founder of CreditExpertWitness.com.
“The difference in score average was only three points and there was no correlation to the score difference using a single card versus multiple cards,” he says. “In other words, there is no metric in scoring systems that rewards you for having fewer cards or penalizes you for having many cards.”
Rod Griffin, senior director of consumer education and advocacy for Experian, offers some clarity. He notes that, “from a credit report and scoring perspective, having more than one card can impact your credit history and your credit utilization rate – either positively or negatively, depending on how responsibly the cards are used.”
Put simply, Griffin is saying that having more than one card can actually help your score. This is largely due to what the industry calls your credit utilization ratio, which measures how much debt you have in relation to your credit limits. A low ratio can help boost your score as this makes up 30% of your FICO score.
While this topic can get complicated, the main takeaway according to Griffin is that when you have multiple cards, you can spread out your spending among these cards since you have more available credit, resulting in a lower credit utilization ratio.
“In the past, the number of cards a person had did weigh more on credit scores,” he says. “However, consumer behavior has changed with time. As a result, the number of cards a person holds has become less predictive of credit risk and credit scoring systems have evolved to reflect this change in the marketplace.”
BONUS TIP!
While having multiple cards can improve your utilization ratio, opening a new credit account in order to lower your ratio is usually a bad idea. Instead, Griffin suggests that “the best way to lower your ratio is to lower your balances (how much you owe on each card), and better yet to pay them off in full” as soon as you can.
➤ LEARN MORE:How to choose your first credit card
Does having multiple credit cards increase your debt?
The survey’s finding about card debt being higher among consumers with more than one card seems logical enough and the numbers speak for themselves. The average balance of $2,134 for single cardholders is about one-third of the size of the average card balance of $6,541 for the entire U.S. population.
While this difference is significant, I think it’s important to also realize that having more than one card can sometimes help you pay off your debt more quickly. Although this may seem counterintuitive, Ulzheimer insists that “it’s always wiser to have more cards than fewer cards, unless you’re just irresponsible [with credit cards].”
That said, if having multiple cards becomes a source of temptation and causes you to overspend, cut up and stop using all of your cards immediately!
The reasoning behind this contrarian line of thinking is that having multiple cards:
- Can give you flexibility to quickly move your expenses to another card if your card issuer increases your interest rate and/or starts dinging you with increased fees, such as over the limit fees.
- Can give you more opportunities to transfer your balance to another low rate card that you may already have and that may also offer intro 0% APR.
BONUS TIP!
The study reveals that the average consumer has about four active cards. However, I have met many consumers over the years that have 10+ cards (myself included) and have zero credit card debt. Many of these cardholders love taking advantage of sign-up bonuses as well as strategically utilizing multiple cards to earn bonus credit card rewards in different categories.
Is it a good idea to have more than one credit card?
While boosting your credit score and lowering your debt are certainly two main potential benefits of having multiple cards, there are others.
For example, Griffin opines that having two reward cards that offer enhanced rebates for different spending categories can help you maximize your rewards. “Using these cards for select purchases and paying off the balances in full is one way having multiple cards can be a beneficial financial tool,” says Griffin.
This strategy is explained in more detail by my colleague Geoff Williams in his article entitled “3 reasons you need more than one credit card.”
Ulzheimer adds two other reasons that deal with spending:
- You have more buying or purchase power, particularly if you are unexpectedly needing to purchase a big-ticket item.
- You have immediate spending options if one of your cards gets stolen or otherwise compromised.
Griffin expounds on the second point by saying “Should you ever lose a card or have one stolen, having multiple cards can give you alternatives if the affected account is blocked or closed. You could continue to benefit from the added security of using a ‘back up’ card for purchases while you wait for a replacement for the lost or stolen card.”
Another final reason why having multiple cards can be a good idea involves the length of your credit history, which is an important component of your credit score. Simply put, closing out cards that you don’t use anymore (such as your first student card you got while in college) usually hurts your score because you lose the benefit of the credit history associated with that card.
➤ LEARN MORE:How many credit cards should you have?
Final thoughts
There is certainly merit in having just one card, particularly if you’re prone to excessive spending. However, there are also several valid reasons for having multiple cards.
There is no doubt that having a single card can be easier to manage – and to pay off if you are an over spender. Having said this, you can still overspend on one card and it only takes one card to damage your credit.
Griffin sums it up well. “Good credit scores aren’t driven by the number of accounts you have. Rather, good scores are the result of how you use the credit available to you,” he says. “A person can have great scores with just one or two accounts and poor scores with 10 or more, and the same is true in reverse. If you abuse your credit, it will hurt your score.”
Last, but certainly not least, the financial decisions you make, including determining how many cards to carry, will require you to examine your own spending habits and financial situation. Credit can be an amazing financial tool when used responsibly. Be honest with yourself and your ability to manage your cards responsibly before determining the path that is right for you.
