How many credit cards should I have?

Knowing how many credit cards you should have can be a minefield. You may have heard mixed messages about whether this type of credit is a good or a bad thing. But assuming you’re comfortable with having a credit card, how many is the right number? 

The ‘correct number’ of credit cards doesn’t really exist. It all depends on the individual, their credit score, their needs, and their financial habits. 

Used responsibly, they can be a great financial tool. But when poorly managed, this type of credit can quickly get out of control. Credit card debt is a huge issue in the UK and the crippling high interest rates can make it extremely hard to pay back.

What is a credit card?

A credit card provides users with a line of credit. Essentially, you are borrowing money from the card issuer (normally a bank) which you then have to repay later.

Credit cards are predominantly used to pay for goods in-store and online. But you can also use them to withdraw cash. 

But there is a big downside to using them to access to cash. The fees charged for cash withdrawals from credit cards can be very high. 

What types of cards are out there?

As well as what might be classed as standard credit cards, there are other types including:

• Cashback cards
• Credit building cards
• 0% balance transfer cards

Cashback credit cards

These cards give the borrower rewards in return for using them. The rewards may be in the form of cashback, air miles, or discounts at certain retailers. 

This type of card often charge an annual fee. So it’s important to check that you’re making the most of the rewards to make the fee worthwhile.

Credit building credit cards

Credit builder cards are marketed towards people with ‘thin’ credit files. These types of card help users build up credit history which allows them to access other lines of credit. 

Since these types of cards help borrowers in the long-run to get better rates, credit building cards often come with a high annual percentage rate (APR). 

The higher the APR, the more interest you’ll accrue on your credit card balance. Making your payments on time and in full will avoid the interest and boost your credit score.

0% Balance transfer credit cards

0% Balance transfer cards remain very popular, and for good reason. 

If you have an outstanding balance on a credit card, you may be able to transfer that balance to a new card and pay 0% interest for a fixed period. 

This gives borrowers more time to pay off their balances and avoid high interest fees. 

A brief look at APR

Before we answer the question about how many credit cards you should have, it’s important to understand some key financial concepts. 

We touched briefly on APR but let’s cover this in more detail. APR is one of the terms that you will see when shopping around for credit cards.

APR stands for annual percentage rate. It reflects the cost of borrowing plus any associated fees. It’s displayed as a percentage so that it’s easy to compare one provider with another. 

By law, you must be shown the APR before you sign any credit agreement.

The percentage APR charged will depend on the type of credit card and the user’s credit score. The better your credit score and ‘fatter’ your file, the lower APR you’ll be offered. 

The average APR is around 22% but you may see lenders offering rates as low as 9.9% and as high as 35%. 

Why use a credit card?

Credit cards have been around for decades and provide a convenient form of borrowing when used correctly and in a financially healthy way. 

However, poorly managing this type of credit can result in borrowers racking up huge debts and no way to pay off balances. 

Let’s look at the advantages first:

Your purchase is covered

If you purchase goods between £100 and £30,000 using a credit card and they are faulty, don’t show up, or aren’t as described, you’re protected. 

Section 75 of the Consumer Credit Act means you can make a chargeback claim. Raising a claim against the provider means you may be able to get your money back. 

Borrow interest-free

With credit cards, you are billed on a monthly cycle. If you clear your balance before your bill is due then there is no interest to pay. 

This hack means you can have regular access to interest-free borrowing, but only if you stay organised and keep tabs on when your bill is due. 

A welcome boost to your credit score

It’s worth knowing that using your credit card responsibly can improve your credit score. Our guide to understanding how your credit score is determined is a helpful resource if you want to know more about credit scores.

Spread the cost of an expensive purchase 

Those with insufficient savings may use a credit card to buy an item that they simply don’t have the time to save up for. A second-hand car needed to get to work is a good example. 

In this situation, a borrower may use a standard card to pay for the car, then transfer the balance to a 0% fee card (see balance transfer cards above). This means the borrower can spread the cost of the car without paying interest. 

How do credit cards affect your credit rating?

This depends on how you use cards. Just as with any other form of credit, if you borrow and then either don’t pay on time or miss repayments altogether, then your credit rating will take a tumble. 

On the other hand, borrowing within your limits and repaying on time will send positive signals to your credit file. Here’s how this works:

Lenders will check your credit file with credit reference agencies

Credit card companies report each month to credit reference agencies. There are three of these in the UK – Experian, Equifax, and TransUnion. Some lenders will report to just one whereas others may report to all three.

It’s worth noting that lenders will carry out a credit check before approving you for a card. If you are declined, pause before immediately applying for another card. 

Applying for lots of cards can damage your credit score

Credit checks will show on your credit file and multiple checks leave lenders worried about your financial situation. Instead, you should try to improve your credit score before trying elsewhere. 

Credit companies like to see balances paid off on time. Clearing your balance every month can bring your credit score some huge benefits. 

Staying within your credit limit tells lenders you’re good with money 

Another important thing to know is your credit limit for every card you have and staying within that limit. This is called credit utilisation.  

Clearscore advises to use no more than 30% of the credit available to you. For example, if your credit limit is £3,000, then aim to spend no more than £900. 

Using more than 30% of your credit limit signals that you may be in financial difficulty to lenders. Regularly going above 30% of your limit could impact your credit score. 

Dealing with lost or stolen credit cards 

As soon as you realise that your card is lost or stolen, make contact with your card provider to cancel your card. 

If your card is used to make multiple and/or large transactions in a short space of time, your credit card provider may be suspicious and cancel it automatically. This is most likely because they suspect your card is being used fraudulently.

It’s a relief to know your card can’t be used fraudulently, but frozen cards can cause massive issues if you’re relying on them. 

If your card gets frozen, it’s a good idea to have a backup plan to ensure you can meet your financial commitments. For example you could:

• Have a backup credit card 
• Use savings 
• Access to your salary via an on-demand provider like Openwage   

How to use credit cards and protect your financial wellbeing

Protecting your financial wellbeing when using credit cards should be a borrower’s number one priority. The good news is that there’s lots of ways to do this: 

• Avoid applying for lots of cards at once. Most application processes involve a credit check, and lots of credit checks in a short space of time can make it harder to be approved. 

• Look for cards that offer rewards and maximise these to your benefit without spending more than you would normally.

• If you use your credit card for day-to-day expenses, setting up a direct debit to pay off your balance each month means it’s less likely you’ll accidentally miss a payment. 

• Aim to use less than 30% of your total credit limit. It can be useful to keep old accounts open so you have a greater ‘pool’ of credit.

• Ensure that you clear your balance in full each month to avoid paying high interest fees.  

• Be sure to know your credit limits and your payment dates. 

• If you feel that your credit limit is too high and too tempting, you can ask your card issuer to reduce it. 

What’s the ideal number of credit cards?

There is no definitive answer to this. The key here is to have what you need and not be excessive. 

Having numerous cards can make it difficult to stay financially organised and increases the chances of missing payments. 

For credit cards to be beneficial you need to ensure that they are managed wisely and responsibly. Staying in control of your cards means you can reap the rewards without being stung with fees or damaging your credit file. 

How we can help

If you’re an employee, accessing your salary before payday can be a really useful alternative to a credit card. 

Car breakdowns and veterinary bills are just some examples of unexpected expenses that may take you by surprise before payday. 

Being able to access some of your pay before payday can help you stress less about money when something unexpected happens.

Find out more about how Openwage can help you unlock your pay. 

The information in this article is for general information only. It does not constitute professional advice from Openwage. Openwage is not a financial adviser. You should consider seeking independent legal, financial, taxation or other advice to check how the information in this document relates to your unique circumstances.