Research of the Week: How Many Credit Cards Do You Have?

Having more accounts may give a slight boost to your score, but it won’t help your debt.

Each week, Consolidated Credit searches for financial research that can help you deal with your debt and budget. This week…

The interesting study

The polling experts at Gallup asked Americans a very simple question: How many credit cards do you have?

The big result

When it comes to the number of open credit cards you have, most Americans are on target. According to the polling data, the average American has 2.6 credit cards, so most of us have between two and three cards. That’s right on target for what experts say about how many credit cards you need.

The fascinating details

Gallup’s poll results show that the majority of Americans are happy maintaining less than three accounts. One in four Americans say they don’t have any open accounts at all. If you take the non-users out, American cardholders average 3.7 cards.

However, the article points out that Americans with higher credit scores tend to have more cards. FICO data shows consumers with excellent scores (800+) typically maintain 10 revolving accounts; that includes credit cards and other open credit lines.

What you can do

“Articles like these can give people the sense that more credit is better for your credit,” explains Gary Herman, President of Consolidated Credit, “but that’s not always the case. More cards are only good for your credit if you’re an expert at managing debt. Otherwise, any benefit you get from more accounts is easily offset by a bad credit utilization ratio.”

Here’s how that works. There are five factors that make up your credit score, each with a different “weight.”

• Payment history 35%
• Credit utilization ratio 30%
• Length of credit history 15%
• New credit 10%
• Types of credit in use / total accounts 10%

Number of accounts is all the way at the bottom and only accounts for 10 percent of your score. Meanwhile, credit utilization counts for 30 percent of your score; that’s affected by how much debt you carry. Credit utilization measures the amount of credit you have relative to your total available credit line.

“Maintaining more active accounts means actively charging on your range of credit cards regularly,” Herman continues. “This creates a higher potential for debt problems. What’s more, good credit utilization means you only use 10% of your available credit or less at any given time. So, if you carry balances over month to month on several cards, it’s not good for your score.”

Essentially, it’s better to have two cards you pay off in-full every month than to have six cards with balances. For most people, that means carrying less cards so you have less opportunity to charge.