How many credit cards is too many?

[MusicJunkie]

---

Members don't see this ad.

A family member of mine informed me that he has 11 (yes, 11) credit cards, not including his wife's. He spent the better part of an hour trying to convince me that this was the smart way to go because "some companies won't even consider you for a loan unless you have five credit cards", among other points that really didn't seem to make much sense.

I know 11 cards would be too many for me, but how many credit cards is considered too many?

 

[PostLessOne]

More than 4. That's the rumor, anyways. The exact FICO formula is a trade secret. (that's right : the credit companies can report this score about us and government entities like Fannie Mae use it to make decisions, yet we are not allowed to know the precise formula. For all practical purposes, the credit score is treated like an official fact as if it were coming from the FBI)

The biggest factor is the % of credit being utilized out of available credit. Thus, you want your 4 cards to have huge limits, if possible. You do NOT want a card with "no spending limit" because those cards can report your available credit as equal to how much debt you have on the card, which wrecks your credit score. If you're a big enough fish to be offered a card like that, you should insist they give you an official limit.

 

[Terpskins99]

I was informed by a financial adviser that having too many credit cards could affect the interest rate on my med school loans. Bottom line: the fewer credit cards you have, the better.

 

[avatarftw]

a

 

[ErikPA78]

Music Junkie, they are wrong.

Quality is much better (to increase FICO score) than quanity....

That is a very good reference there from ochocinco,

the ezact FICO algorithm is a secret. Plus there is FICO classic, and 2.0 and 3.0 (experian, equifax and transunsion all are a tad differant). However, if you google well, and read the details on a credit score that you have online, you can learn pretty much the major gist of the entire algorithm.

At any rate, when dealing w/ credit cards, that is "Revolving Debt"

- when the FICO calculates how your revolving debt will impact your score they look at:

a) how MUCH overall revolving debt you have (less is better, obvious)

b) the % of utilized revolving debt (again, less is better)
- again think about it however. With all things other things equal, you have Person A who has 5k in revolving debt with a 25k limit. Then there is Person B who has 5k in revolving debt with a 6k limit. Person A's credit score will be BETTER, b/c they have a much lower % of utilization. Whereas person B is on the verge of being "maxed out"

c) Having 3 seperate cards with lets say 10k limits each, looks BETTER than having 10 seperate cards with a 3K limit each. Because they lenders appear to have more trust in you.

Let me see if i can find the write up portion from my credit report. (I just pulled it this month, as I do every Dec)...

Here are some of the "score explinations I found" fwiw...(so you can read the horses mouth, if more beneficial than my explanation......)

2. Credit limits and loan amounts
On average, your open revolving accounts have a credit limit of $10,037. This raises your score. Having accounts with a high credit limit or loan amount is a positive factor, because it indicates to a lender that other lenders have trusted you with a lot of credit in the past. On the other hand, having accounts with low credit limits or loan amounts is a negative factor. It may suggest that your credit reports contained information that was of concern to lenders at the time they determined your credit limits or loan amounts. Finally, having no accounts with a reported credit limit or loan amount is a negative factor because lenders cannot evaluate how much other lenders have trusted you with credit so far. This only includes accounts for which the credit limit is reported. Lost or stolen, transferred, or sold accounts may be excluded from this factor.

3. Credit accounts
You have 4 open account(s). This raises your score. Having accounts listed in your credit reports is a positive factor because the payment history of these accounts shows lenders how well you pay your bills. Therefore, having too few accounts or too few open accounts may be considered negative. However, having too many accounts or adding new accounts too quickly may also be considered negative because lenders worry that you are spending (or preparing to spend) beyond your means, even if you have never been late with any payments. Note that closing accounts will not improve this. Also, if you do not currently have credit, getting your first few credit cards may be difficult and may involve high fees, high interest rates, and low credit limits. Note that accounts from personal finance companies (which specialize in lending to people with credit problems) may be considered negative. Lost or stolen, transferred, or sold accounts may be excluded from this factor.

..................I would say 11 is WAYYYY too many.

In terms of you having a high FICO score, you want QUALITY, not quanity.
-With Quality meaning:
- the longer it has been open, the better
- always paid on time
- a high avaliable limit, yet you have very little of it in use

I think that 2-4 revolving accounts is plenty.

 

[Bobblehead]

I think I've had as many as 11 accounts in the past. I've never actively used more than 2-3 at a time depending on the particular flavor of bonus I was going for at that point in time. I've never really noticed or worried about the impact of the open, unused accounts on my credit score and my credit score is still sufficient to get the best mortgage rates.

Some people are able to maintain many accounts for all sorts of bonuses but I've settled on a "good enough" AmEx for my primary card with a "good enough" back-up Visa just in case the business doesn't take AmEx, both of which have rewards structures that are acceptable to me.

 

[Sed8&Intub8]

Now one thing to keep in mind is that if you have a lot of credit cards and you are not using them for a long time, the banks will start canceling them due to this credit crunch. You want to start using the cards to get gas or for food every once in a while, or they will cancel it. It will look bad on your credit report because it will say 'account closed by issuer' or something of that nature, which hurts your credit score, and also increases your debt to credit ratio. If you don't use your cards for a long time, and don't need it, then just call and close them so that your report says 'account closed by consumer' which looks way better.

 

[zeloc]

All of these posts are wrong.

There is not a number of credit cards that are "too much." There are people with as many as 15 or more credit cards who have outstanding credit scores. It is not the number of cards per se, but the utilization and the credit limits which are nicely explained by someone above.

Having lots of cards CAN decrease your credit score, by various ways, including:

missed payment because you cannot keep track of them
if you decide to close any of the accounts it will lower your score
if you do not use any particular card for a long period of time the credit card company can close your account and this will lower your score
if you have no other accounts on your credit report then you may be dinged for having relatively too many revolving accounts.
etc

If, however, you can avoid all the above and you have many other aspects of your credit history including non-revolving loans, car payment, student loan, etc, etc, then having lots of credit cards can be beneficial.

 

[PostLessOne]

All of these posts are wrong.

There is not a number of credit cards that are "too much." There are people with as many as 15 or more credit cards who have outstanding credit scores. It is not the number of cards per se, but the utilization and the credit limits which are nicely explained by someone above.

It's thought that the FICO formula takes points away for having more than a certain number of credit cards. That is, ALL THINGS HELD EQUAL, you'd have a lower credit score if you have more than about 4 cards.

Of course, if you have 15 cards, 10% utilization, and a 30 year payment history you're going to have a great credit score regardless.

 

[ErikPA78]

Zeloc,

by the most strict "pure" interpretations, you are correct, in that I myself have not came across any supportive literature that shows hands down that lets say "11 credit cards" is detrimental to your credit.

However, read about #2 that I posted above.

By the textbook, it might not be...however in REAL LIFE it is.

Why? B/C they consider % of revolving debt as a factor, ok got it.

So What does that have to do with the NUNBER of cards???---> they ALSO consider the amount of average credit line as a factor. (See #2 I cut/pasted)

Think about it for a second. If one has 11 credit cards, the ONLY mathmatical way for that NOT to be detrimental would be for all of them to have the same credit limits. (chances of that are low) By that same person effectivly cancelling let's say the lowest 5-6 of them in terms of the ones with the smallest credit line, they therefore increase the avg limit for all of them cumulativly. Again See #2.

The chances are high that a FEW of those 11 cards have low available credit limits on them and those are dragging the credit score down somewhat.

 

[PostLessOne]

Course, if he cancels the cards with the lowest limits, he raises the % utilization, assuming he has some debt on his cards. Kind of a wash.

Anyways, it's all academic. In reality, a few points either way doesn't hurt you. What hurts you are negative events on your credit. You should avoid those if you possibly can, and challenge any that do show up.

And in the long run, the thing that actually matters is how much actual money you have. Credit barely matters at all if you can buy what you need out of pocket. In some areas of the country, even houses are cheap enough that you could buy them cash.

 

[VILO]

With that many cards I would be worried about the accounts being deactivated or closed for non use. Credit scores are negatively affected by inactive revolving accounts.

I wouldn't think you need any more than 4 or 5 cards, especially if you keep your utilization rate low. That being said, the longer and stronger your credit history is the less likely having a bunch of cards is going to hurt you much.

 

[zeloc]

It's thought that the FICO formula takes points away for having more than a certain number of credit cards. That is, ALL THINGS HELD EQUAL, you'd have a lower credit score if you have more than about 4 cards.

It may be thought that, but it's not correct. What is your source?

 

[zeloc]

Zeloc,

by the most strict "pure" interpretations, you are correct, in that I myself have not came across any supportive literature that shows hands down that lets say "11 credit cards" is detrimental to your credit.

However, read about #2 that I posted above.

By the textbook, it might not be...however in REAL LIFE it is.

Why? B/C they consider % of revolving debt as a factor, ok got it.

So What does that have to do with the NUNBER of cards???---> they ALSO consider the amount of average credit line as a factor. (See #2 I cut/pasted)

Think about it for a second. If one has 11 credit cards, the ONLY mathmatical way for that NOT to be detrimental would be for all of them to have the same credit limits. (chances of that are low) By that same person effectivly cancelling let's say the lowest 5-6 of them in terms of the ones with the smallest credit line, they therefore increase the avg limit for all of them cumulativly. Again See #2.

The chances are high that a FEW of those 11 cards have low available credit limits on them and those are dragging the credit score down somewhat.

I think I see what you are saying, but it seems you're assuming that having many cards is synonymous with having low credit limits. It's possible to have many cards and have high credit limits.

Canceling the lowest limit credit card may increase the average limit on the others but the detrimental effect of both canceling the card plus the effect on average account history will likely worsen the score more than the increase in average limit will help it.

I agree that % of revolving debt is a factor but again, this can be solved by low utilization.

I'm not saying its beneficial to have many credit cards, whether it will help or not depends more on the individual factors which I, yourself, and others have described in this thread. When you purchase your actual FICO score, it gives reasons for why the score is low. Of all the possible reports that people have gotten, I have never heard of anyone having reported that it said they have too many cards.