How Many Credit Cards Do You Really Need?

Credit card sign-up incentives are everywhere these days because they work. But while saving money or adding up miles may sound enticing at the time, you also need to consider the potentially serious consequences when you carry too many cards.
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Dear Carrie,

I'm suffering from credit card fatigue. It's not that I ever carry a balance from month to month, but I'm guilty of falling for sign-up incentives -- and currently have 25 cards (including department stores). Is this too much? And if so, how can I decide which ones to keep and which ones to give up?

-- A Reader

Dear Reader,

Credit card sign-up incentives are everywhere these days because they work, as you can attest. But while saving money or adding up miles may sound enticing at the time, you also need to consider the potentially serious consequences when you carry too many cards -- from an increased risk of loss or fraud to wasting your valuable time managing multiple accounts to just plain overspending.

And now that you have all those cards in your wallet, you need to be careful not only about the way you use and protect them, but also about how you might eliminate a few. Before you get out the scissors, here are some financial pros and cons to consider.

Decide which cards -- and incentives -- you'll really use
Certain features can make particular cards worthwhile. So first do a little sorting.

Put all of your 'proprietary' cards in one stack. This includes cards issued by retailers like Macy's or Target or a gasoline company. Think about how often you use each card and whether it gives you a discount or other valuable benefit.

Now look at your bank credit cards. Which ones do you regularly use and why? If it's a matter of rewards, decide which are the most practical. For instance, cash-back programs can add up. On the other hand, while travel perks may be alluring, be realistic about whether you will, or even can, use the accumulated miles or other services.

Also look at what each card is costing you. Is paying an annual fee justified by the benefit you derive? How do interest rates compare? If you travel outside the U.S., are you charged foreign transaction fees?

The goal is to narrow your cards down to the few that are the most beneficial and the least costly.

Understand your credit utilization ratio
Once you've made your pick, it's not just a matter of canceling the rest. You also have to consider what is known as your 'credit utilization ratio' and understand how that number affects your credit score. The issue here isn't how much credit you have available, but how much of your available credit you use.

To get your ratio, divide your total debt balance by your total available credit. For example, let's say you have $50,000 in available credit and $8,000 in charges. Your credit utilization ratio would be 16 percent, which is low. Now let's say you eliminate several cards, bringing your available credit down to $25,000. Your ratio jumps to 32 percent.

While there isn't one perfect number, a lower ratio can result in a higher credit score. As a general guideline, 20 to 30 percent is a good goal.

Think carefully about which cards to cancel... and how
Having multiple credit cards isn't necessarily a problem as long as you manage them wisely. One tactic could be to simply put your less frequently used cards aside and carry only those that suit your everyday needs. However, if you prefer to cancel some of your cards, do it thoughtfully.

First, keep in mind how long you've had a credit relationship because a long credit history is a positive. Again, consider your utilization ratio. To keep your available credit -- and your ratio -- at a healthy level, you could increase the credit limit on the cards you keep before you cancel the ones you don't need.

Finally, remember that it takes more than cutting up a card to cancel an account. You must contact each issuing company and request that the account be closed.

Approach new offers with caution
Once you've winnowed down your cards, make a deal with yourself to resist the lure of new offers. Before getting sucked in, carefully review the terms and conditions, and make sure the rewards are worthwhile.

There's no ideal number of cards to have. Some experts recommend having only one or two, especially for those just starting out or with a history of mismanaging credit. Others say anything over five or six is too many. But if you're good at juggling multiple accounts and pulling out just the right card for the right reward, and you're not paying multiple annual fees, the exact number isn't significant.

Ultimately, I recommend that you carry the cards that help you do business cost-effectively and -- most importantly -- stay on top of your bills.

Looking for answers to your retirement questions? Check out Carrie's new book, "The Charles Schwab Guide to Finances After Fifty: Answers to Your Most Important Money Questions."

This article originally appeared on You can e-mail Carrie at, or click here for additional Ask Carrie columns. This column is no substitute for an individualized recommendation, tax, legal or personalized investment advice. Where specific advice is necessary or appropriate, consult with a qualified tax advisor, CPA, financial planner or investment manager.


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