How Many Credit Cards Is Too Many?

Credit card issuers are following the lead of retailers offering deals ahead of Black Friday. Both general-use and store-specific credit cards are now offering promotions that could reduce one's holiday expenses by up to $625, according to CardHub. But do you think you already own too many credit cards?

According to a recent Gallup survey, the average number of credit cards Americans own is three. Whether that number is too many, too few or just enough is really a question of how one uses and manages the accounts.

If you have the tendency to spend more than you have, you might need fewer than three credit cards or none at all, says Harrison Lazarus, a financial consultant and founder of Harrison Lazarus Advisors. On the other hand, if you spend well within your means, more credit cards could be good for you. "You will be able to access money when you need it, obtain fringe benefits like rebates and mileage, and improve your credit score," Lazarus says.

According to CardHub, the two best credit cards to consider for lowering your holiday spending tab are the Citi ThankYou Premier Card and the Chase Sapphire Preferred Card. Both offer valuable initial rewards.  

The Citi ThankYou Premier Card has a 50,000-point initial bonus, worth $625 when redeemed for airfare or $500 in gift cards. There is no fee during the first year, but you will get charged $95 annually thereafter.

So, should you sign up for this and other cards to take advantage of the initial rewards, and then cancel all of them after the holidays or after the promotion ends? Beware of this strategy, warns Kimberly Howard, a certified financial planner and owner of KJH Financial Services.

If you own three credit cards and you sign up for three new ones, you will have six monthly statements to deal with each month. "Having too many credit cards can lead to the lack of time and focus to ensure proper credit card management," says Howard.

Every credit card will require a payment date and each one could be different. This payment juggling, Howard says, could lead to missed payments or late payments, which could lead to a decrease in your credit score.

The plan to close the new cards immediately after the holidays can also be dangerous. Each time you close a card, you will take a small hit on your credit score. If you must do this, Howard's advice is to allow a six-month interval so your credit score could recover before the next card is closed.

Several factors influence your credit score: previous payment performance, outstanding debt and the length of time the credit has been open. Inquiries and new accounts also affect your credit score. Every time you apply for a credit card, an inquiry is added to your report and your credit score goes down a little. "An inquiry is viewed unfavorably because it means you are shopping for credit," Lazarus says.

To find out if the number of credit cards you own is a reason for your low credit score, pull your credit report and look at the risk factors. If "too many revolving accounts" is listed as a risk factor, it might be a good idea to ignore new card offers.

If you're the type who opens a store credit card every time you hear the words, "additional 10% if you open an account today," chances are you already have too many credit cards lying around that you have not used since the day you gave in to their appealing introductory offers.

Open accounts that you have forgotten could increase your risk of identity theft because the cards lying around could be stolen and used to make charges. If you have unused credit cards that you do not want to close just yet, it's best to lock them away or keep in a safe deposit box in your bank.

Are you having difficulty getting a loan for your home or car? The number of credit cards you own could be a factor. Howard says loan officers nowadays seem to frown upon borrowers with more than five credit cards.

Even if you maintain zero balances on several open credit cards, you can be considered a risk. "The loan officer realizes that you could use all of your credit cards after the loan is approved, and that will affect your ability to repay the loan," Howard says.

Although a high credit score will help prove you are worthy of loan approval, Howard explains it is not always the case. She has observed that since 2008, loan officers have been very careful in approving loans. "They are favoring mostly those with a limited number of credit cards, in addition to having a high credit score."

If you are still unsure about your spending habits and general attitude toward credit, here's another warning sign that you have more credit cards than you can handle: You are saving less than 10% of your gross income.

If you look at your savings and you're not comfortable with what you see, it could be that you are spending (and charging) more than you can afford. Ideally, Lazarus says, you should be saving 10% or more of your gross income.

For example, if you earn $3,000 every two weeks and get paid $2,300 after taxes and other deductions, you should be able to save at least $300 every two weeks.

If you find that goal hard to achieve, fewer credit cards or none at all might be the way to go. "Less or no credit is better, because you will avoid overspending, underpaying, incurring excessive interest and reducing your credit score," Lazarus says.

Next steps: If, after reading this, you are convinced you can manage another credit card, check out CardHub's picks for 2015's Best Credit Cards for Holiday Shopping:

Best for Lowering Your Holiday Spending Tab with an Initial Rewards Bonus
Citi ThankYou Premier Card (50,000-point initial bonus)
Chase Sapphire Preferred Card (40,000 bonus points when you spend $4,000 during the first three months)

Best Ongoing Rewards to Benefit During the Holidays and Beyond
Citi Double Cash Card (2% cash back across all purchases)
Blue Cash Preferred from American Express (6% cash back at supermarkets)
Capital One Venture Rewards Credit Card (40,000-mile rewards bonus after spending $3,000 in the first three months)
Barclaycard Arrival Plus World Elite MasterCard (40,000-mile rewards bonus after spending $3,000 in the first three months)

Best for Avoiding Interest on Holiday Purchases
Citi Diamond Preferred Card (no interest for the first 21 months, with minimum payment)

Best for Lowering the Cost of Existing Debt and Buying Yourself Some Holiday Shopping Breathing Room
Chase Slate (0% intro rate on balance transfers for 15 months and no balance transfer fee)

Best Store Credit Cards - Initial Bonus
Kohl's Credit Card (20% off on first purchase)
Toys R Us Store Card (15% off on first purchase)

Best Store Credit Cards - Ongoing Bonus
GAP Store Card  (5% cash back)
Target Credit Card (5% off on all Target purchases) Store Card (5% off on all purchases)
Source: CardHub

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