Sound familiar? I was recently asked this question by one of my clients and figured the question warranted discussion.

The average American has anywhere from 5-10 credit cards, though with the recent financial crisis, that number has probably gone down. Do American’s need that many? Maybe, maybe not. I think the number of cards themselves is less important than the amount of debt you can comfortably pay off each month.

As we’ve discussed before, your credit score is determined by several factors, one of which is the debt-to-credit-limit ratio on all of your cards. Ideally, you want to keep what you owe on each card between 25-45% of what your actual credit limit is. This ratio helps lenders determine what kind of risk you are, what kind of debt you can handle, and of course, your spending habits.

Credit cards are merely a tool, so the idea is to use them to help you build a solid credit history. As I explained to my client, the number of cards will vary based on each person’s individual needs. What they have to figure out is what those needs are and how many cards are necessary to meet those needs. In my personal experience, I’ve never needed more than two cards at most and have been comfortable with only those two cards.

However, in talking with people who’ve carried multiple cards, there are some misconceptions out there. I’ve heard that carrying one card from each of the major credit providers (i.e. Visa, MasterCard, American Express, and Discover) is a good idea because you never know who will accept which card. At some point, this may have been true, but the reality is that we are much more advanced now then we were when credit cards first came about. In the U.S., practically everywhere accepts Visa and/or MasterCard with more and more accepting Discover and American Express. Worldwide acceptance tends to favor Discover card, with the exception of Europe as American Express is more widely accepted there. While a combination of these cards may be advisable for acceptance reasons, that should not be the only concern when deciding whether or not to carry multiple cards.

Another factor to take into consideration is the upkeep all of these cards will require. By upkeep I mean that you’ll have to remember due dates and payments, etc. With our handy dandy computers, this is made much easier these days, so it may not be an issue for some. Others may struggle if they have too many cards, and so for this reason it would probably be best for them to have fewer cards. In either case, it’s important to have a system that works for you so that your bills are paid on time.

Whenever we discuss having credit cards, I’m always an advocate of not having them if you intend to carry balances. However, the reality is that a lot of cardholder’s were carrying balances on their cards, so my advice, while well-meaning, was often impractical to those people. In this case, I would say to consider your cards carefully. Irrespective of the number of cards you intend to keep, you should choose your cards based on your specific needs. That means if you intend to carry a balance on the card – whatever your specific reasons for doing so are – then you probably don’t want a rewards card with a higher interest rate. Conversely, if you’re a frequent traveler who could benefit from a miles program of some kind, it doesn’t always make sense to choose a gas rewards card.

A final factor to consider when deciding how many cards you should have is your debt-to-income ratio. I’ve talked about this before in terms of lenders and their lending practices, but as a reminder, this is what you have going out every month versus what you have coming in. Experts say the magic number is about 35-40%, meaning that your debts should be about 37% of your income. This number includes your mortgage, auto loans, student loans, credit card debt, and any other consumer debt that reports with the credit bureaus.  The number of cards you choose to carry should reflect your understanding of how important this ratio is to your overall credit health.

With all of that said, I reiterate my initial statement that the number of cards is less important than the amount of debt you can comfortably pay off every month. The one good thing that has come out of this credit crisis is the change in perception for many people. Credit cards should never be a crutch to lean on in times of duress, that is what your emergency fund is intended to be. Credit cards should be a tool to help you build a good credit file. Simply put, I can’t tell you the exact number of credit cards you should have, only you can answer that question for yourself, based on your needs.

What do you think? If you’re comfortable, share how many you have and why you thought that was a good number. Do you think there is a limit on the number of cards a person should carry? Does it change when that person becomes a family?

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