What and How Many Credit Cards Should I Have: Full Guide

Updated: August 3, 2020

Win the Credit Card Game

In 2020 Credit Cards are a necessity just like your cell phone or a driver’s license. They are powerful tools that can destroy your finances when used incorrectly. Our goal is the opposite – to win the Credit Card game and to use credit cards for our benefit.

Consumers should curate a selection of cards that provide them with the best benefits for their personal needs. There are cards for different purposes: like travel rewards, cash back, balance transfer, and secured cards. Some cards are pretty basic while others promise you the world with the swipe of your hand.

This is NOT a Game

Every time you apply for or use a Credit Card your Credit History gets impacted. Due to high APR on credit cards, it is very easy to fall into a financial trap when you are just trying to keep up with monthly payments.

We recommend this guide for those with strong financial health. Indicators of strong financial health include a minimum credit score of 720, and fully paying off your balances every month. Use this guide only if you are 100% confident that you can pay your Credit Card balance in full each month. If you don’t pay off your credit card debt even for one month – all of the potential savings we discuss in this guide will be erased.

If You Are Not Ready, Improve Your Financial Health First

Focus on reducing your debt. For help figuring out your credit card finances, visit our credit card calculators. Our credit card payoff calculator explains how long it’ll take, and how much it’ll cost to pay off your card. The credit card payment calculator shows your payments if you paid off your credit card debt in a specified time.

Once you get control of your debt, you can begin repairing your credit. Consider applying for a secured credit card. The security comes from the card issuer shifting the credit risk onto the customer by holding a deposit for the card. Your deposit is returned when the card is converted to an unsecured one. Meanwhile, lenders report your credit behavior to the credit card bureaus.  This builds your credit card history.

Credit Cards

How Many Credit Cards Should I Have?

You probably have questions, like what kind of cards should you hold; and how many credit cards should you keep? We recommend that you hold three cards. Three is the number at which most people can manage without sacrificing their financial health. Once you become more proficient, with the Credit Cards benefits, you can add more cards for special transactions.

Card #1 Is Your Primary Credit Card

This is the card that you would use most frequently. We recommend you select a rewards card, guided by your current spending habits and your ultimate goals. In general, the more money is spent on your credit card, the more benefits you will earn. Many credit cards offer annual bonuses for hitting specific rewards thresholds. That is why once you select the best card for yourself you will need to put most of your transactions on that card to maximize the rewards.

!!! Warning: Do not spend beyond what you can afford to chase rewards. You’ll end up accumulating finance charges and debt that erode your benefits.

Where you spend your money is important. If you eat out at restaurants frequently, your optimum credit card should offer perks for dining out. Review your bank and credit card statements over the last few months. You’ll want to see the various types of merchants that you shop from and look at the frequency and for patterns.

Types of Rewards Credit Cards

After seeing the patterns in your spending habits, you should decide what type of rewards you want to earn.

  • Retail or Store-Branded. If you tend to favor a particular brand, you can consider a card tied to their retail store(s). It’s usually linked to an immediate discount (for signing up), and recurring exclusive discounts for future store purchases. There may be other benefits, like free shipping, when using your card.
  • Co-Branded Airline and Other Travel Cards. You may prefer to travel with a particular airline or stay at a specific hotel chain. Your card will reward you with bonus points and special perks when booking the flight. The best benefits are gained by booking through the issuer’s travel website using your card. You can earn more points for purchases made through the brand. In return, you may receive special bonuses, like an extra night, or free Wi-Fi.
  • Transferable Points Travel Cards. If you don’t have loyalty to a specific brand, consider investing in a card with a transferable points program. Your points are exchanged for benefits offered by your card’s travel partners.  You can choose the best hotel and airline to use when booking your travel, instead of being limited to one brand.
  • Non-Affiliated, Fixed Value Point Cards. If none of the previous card categories matches your habits, consider a card that offers fixed-value points. You’ll earn points which can be redeemed for tangible goods, cash, or statement credits.

Card #2 Is Your Backup Credit Card

You need a backup card in case you can’t use your primary card. You can lose your primary card or it can get locked for a fraud activity. While you wait for a new card to arrive in the mail, you will still have the ability to pay with your backup Card.

As this is not your primary card, you will need a no annual fee credit card. Annual fees can range from $25 to $500 per year. If you don’t use your secondary card often enough, you may question if the card and fee are worth it. This concern is eliminated with a no annual fee card.

Reasons for Getting a Backup Card

Here are some other valid reasons for investing in a secondary card.

  • Something happened to your primary card. Your primary card may have been lost, stolen or damaged. Although your issuer will send a replacement in a few days, you may need to make a purchase before. It could be a charge you can’t delay until the replacement arrives. Perhaps a bill became due and you don’t want late charges.
  • You can improve your credit score. Even if you don’t use the card that often, your card behavior will be reported to the credit bureaus. Having more than one long-term card with good credit behavior will improve your credit score. This is especially true if you have good habits like paying it off in full every month. Lenders use your credit score to determine what kind of consumer risk you will be. Their assessment determines if, and under what terms, you will get a loan. A higher credit score will make it easier to qualify for other loans in the future, like a mortgage.
  • You can improve your utilization. Utilization is the ratio of revolving credit you are using to the total amount of revolving credit you have. This is worth 30% of your credit score. The Fair Isaacs Company (FICO) Score model used by most lenders considers your overall utilization and utilization by card. Lenders prefer if you have 30% or less utilization on each card. When you’re nearing that limit, you can switch to paying for things with your secondary card.

Card #3 Is a Credit Card for Your Special Needs

Your third credit card should be specifically for special purchases. You should not apply for a new card without carefully considering your financial situation. It would be beneficial for you to understand when it’s a good idea to get card #3. Your third card should come from one of your current issuers (see the bullet point below “Build faster rewards”). There should be no more than two special purchase credit cards (the third and possible fourth card) in your wallet. The implications to your credit and financial health make this due diligence critical.

When Is It a Good Idea to Get Credit Card #3?

In order to answer this question, you should think about the following:

  • Maximizing your Cashback. The primary reason to get a specialty card if it gives you a bigger effective cash back than your primary Credit Card. For example, if your primary credit card gives you back 2%, but you can get 4% on gas back with specialty credit card – this is a good reason to consider it.
  • Diversifying rewards. When analyzing your spending habits, you may have had more than one leading spending category. Your first two cards will provide rewards towards the two largest groups, but not necessarily the other top ones. Perhaps you may already understand the benefits of having a diverse set of rewards. Your third card can fill this rewards gap. You should absolutely maximize the perks you receive from things you were going to buy anyway. Imagine you’re looking for a third card to match the cash back and no annual fee cards in your wallet. You’re interested in an airline credit card. This new card will come with benefits that your other two cards may not offer. You may now have access to free airline tickets and travel insurance that you didn’t have before.
  • Build faster rewards. If your cards come from the same issuer, you may be able to combine the rewards from both accounts into one pool. American Express users are allowed to pool rewards into one account. Citi offers the same benefit to their customers. Chase’s Ultimate Rewards lets you transfer your points into another household member’s account. Doing this provides a way to use your points if you or a household member cancel a card. This same program permits conversion from cash-back points to Ultimate Rewards points, which are of higher value.

Credit History Implications

  • How long have you had your last card? The effect of your last card can take from 6 months to a year to be seen on your credit report. Every time you apply for new credit, your credit score drops. Applying for multiple cards within a short space of time will cause major damage to your score. If it has been less than a year since you last applied for credit, wait until the 12 month anniversary of your current card.
  • Can you manage adding this additional card to your wallet? To answer this question requires honesty about your financial situation and past credit card usage. Managing three cards is not that easy. You have three bills to pay, three due dates to remember, and three credit limits to track. If you have low utilization and pay your balance in full every month, you’re a strong candidate for card #3. However, if you’ve maxed out your other two cards, you shouldn’t get a third card. Instead, you should work to pay down your credit card balance while developing better spending habits.

When to Consider a Balance Transfer Card as a Specialty Card?

If you are planning a big purchase such a wedding ring or a second car, it might be tempting to apply for zero balance transfer card. Consumers who use these cards need to understand the risks associated with them.

A balance transfer card allows you to transfer high-interest debt onto a new, lower APR card. The balance transfer process usually incurs a fee: the greater of $5 or $10, or 3-5% of your balance. Which means it is not really 0% as you are still incurring debt expense. It applies a low-interest rate to your account for at least 6 months (as required by law). If you are going for balance transfer card you should always aim for the longest promotional period for which you can qualify.

Things to Keep in Mind When Choosing a Balance Transfer Card

When choosing a balance transfer card, there are a few things you should consider. You must pay off the debt before the promotional time expires as your APR will rise to the regular rate. Be aware of your introductory, regular, and penalty interest rates. You should not assume that your promotion expires on your due date; double check this with your card issuer.

When paying off your debt, do not make new purchases. There are two reasons for this. One, balance transfer cards allocate different debt to multiple accounts with different APRs. Your 0% APR may not be applicable on new purchases. Unless you can pay off your balance within the month, you’ll pay the full APR on month-to-month balances. Two, according to the Credit CARD Act (2009), your payment is applied in a specific order. The minimum payment is applied, and then the remaining funds are put toward your accounts in order of descending APR. In other words, instead of paying off your low-interest debt, you’re paying off new purchases at a higher APR. This will result in a nasty, expensive shock at the end of your promotional period. At this time, your regular APR will be applied to the balance of your high debt balance.

Balance transfer cards have consequential benefits and drawbacks, and it’s best if you are familiar with them. The advantages include the lower APR, possible better terms (than your last card), debt consolidation, and other perks. Your disadvantages include the inevitable high APR, the balance transfer fee, and the high credit score you need to qualify.

Choose the Right Cards for You

With the accessibility of credit cards, it can be overwhelming to build a good credit card portfolio. Making decisions as to the types and quantity to own is an important part of a strong financial strategy. A potent instrument like a credit card should be selected with care, based on one’s overall fiscal situation.

In our research, we recommend that the average consumer in good financial health have three cards. At three cards, consumers should be able to maintain a good credit score and pay off balances each month. If your credit score isn’t good or you have high amounts of debt, your priority should not be credit cards. Instead, you should focus on paying down debt and bringing up your credit score. Use our calculators to help crunch the numbers. If you insist on applying for a credit card, a secured credit card is the best option to pursue.

If you’re ready to build your credit card portfolio, use the following links to research different types of cards. For those of you with a good credit score, and looking for your primary card, consider these rewards credit cards. We also invite you to look up some no annual fee credit cards as either a primary or a backup card. For the seasoned credit card user managing their accounts well, have a look at these balance transfer credit cards.

Roman Zelvenschi

I started a digital marketing agency Romanz Media Group Inc. 12 years ago. Running my own business quickly taught me the importance of cash flow. Making sales was not enough, I had to have money in the bank to pay the vendors, staff and personal bills.

During those early stages of the company I learned how to get creative with debt and to save on interest cost. I paid for everything I could with a credit card to both get more points and to extend the payment date by 25 days (credit card grace period). I then utilized a 0% balance transfer offers to rotate this debt.

I learned a lot during this process and made a lot of mistakes. My key lesson is that the most important part of being financially independent is how much I managed to save, rather than how much I earned. Staying disciplined with savings and tracking spending is not easy and I tried many different methods to stay on track.

FinancialFreedom.Guru is a side project where I and my staff are trying to share the practical knowledge on how to understand finances and to build wealth.

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How many credit cards do you own? Do you have a primary, backup, and a special credit card? What types of credit cards do you prefer? Share your opinions on the ideal number of credit cards.

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James C.
James C.
1 year ago

I have two credit cards:
1 – I keep rolling, maybe 100.00 to 200.00 a month. I pay it off every month.
2 – is only for emergency.
For me, it’s the ideal number of credit cards.

Nick N.
Nick N.
1 year ago

I’ve had only 1 card for many many years. I use it for every bill/purchase I can, and I pay the entire bill monthly. My credit score hovers around 820’s. So, in my opinion and experience, 1 credit card is exactly enough.

Amanda Nelson
Amanda Nelson
1 year ago

I have always had 2 credit cards. Now I think of taking one more card for my special needs. Thanks for the article.

1 year ago

I have 4 cards – 1 MasterCard, 1 Visa, 1 AmericanExpress and 1 Discover. I prefer to have at least 1 of each of the major credit cards but most retailers take a variety unlike years ago stores were very exclusive and only took 1 or 2 brands.

Mary Cohn
Mary Cohn
1 year ago

From the point of view of credit history, it’s not the number of credit cards that matters, but the utilization. If you keep debt below 30% of overall available credit, it’s ok to have as many cards as you wish.

Matthew P.
Matthew P.
1 year ago

I just keep 3 credit cards.

Dorothy Mc
Dorothy Mc
1 year ago

While you are building your credit, and FICO score you do not need to apply for a credit card without it being hard hit on your your credit report. Because if you are not approved other creditors do not know your credit limit and hopefully your current credit card is is maintained below 30% to maintain a good FICO score.

Tanya Prince
Tanya Prince
1 year ago

 I just got my Capital One card about a month ago and my credit score’s just jumped up two days ago 19 points

1 year ago
Reply to  Tanya Prince

I have this card, it the best one to have…no annual fees. No hidden fees. It’s a great card