How Many Lines of Credit Should I Have?

By Kelly Boyer Sagert · September 26, 2022 · 7 minute read

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How Many Lines of Credit Should I Have?

There’s no one answer that fits all situations. The average American has 4 credit cards. But how many lines of credit you should have depends upon your needs, your skill at managing your finances, and your ability to make payments on time.

We’ll explore two types of credit lines, provide definitions of basic credit terms, and offer some broader context so that you can make the choice that’s best for you.

Line of Credit Definition

First, what is a line of credit? A personal line of credit (sometimes called a PLOC) allows consumers to borrow money as they need it, up to a set limit, and pay it off over time. A line of credit can be used to pay bills or make purchases directly or to withdraw cash with no cash-advance fee. As long as borrowers keep paying down the balance, they can keep borrowing. In other words, this is a type of revolving credit.

Lines of credit are usually granted only to people with good credit. Because they’re less risky for the lender, the interest rate can be lower than for credit cards.

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How Does a Line of Credit Work?

Many banks, credit unions, and online financial institutions offer lines of credit. A distinguishing feature is the “draw period.” During that time — typically seven to 15 years — funds can be borrowed and repaid in a revolving way. When the draw period ends, users can no longer make purchases or withdrawals, though they can reapply to keep the line open. The repayment period can continue for additional five to 13 years.

To utilize a line of credit, consumers may receive checks, a card, or a direct deposit into their bank account. Funds can be used however they like, but generally go toward large purchases. Personal lines of credit often have a variable interest rate, with interest-only payments during the draw period.

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Is It Possible To Have Too Many Lines of Credit?

In this case, a “line of credit” refers to both PLOCs and credit cards. All credit cards are a form of credit line, but not all lines of credit are associated with a credit card.

If a consumer has many credit lines, lenders may see them as high-risk — even if their balances are all zero. As noted above, the average American has four credit cards. New Jersey residents have the most credit cards in the country, with 4.5 on average. Older generations tend to carry more cards than Millennials and Gen Z. So while four lines of credit may be considered normal, it can be “too many” if a consumer has trouble juggling their bills and making payments on time.

Is It Possible To Have Too Few Lines of Credit?

To build a strong credit score, it helps to have a variety of credit types. Credit mix accounts for 10% of a FICO® Score, and the ideal mix includes both revolving credit and installment loans like personal loans, car loans, and so forth. Although each person’s situation is unique, just having credit accounts and managing them well is what builds a good credit score. Having one or two cards can be enough.

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Credit Card Definition

You may be wondering, if a line of credit can come with a card, then what is a credit card? Both credit cards and lines of credit are forms of revolving credit offered by many financial institutions. A credit card holder can also make purchases up to the credit card spending limit. However, credit card users can avoid interest charges by paying off the balance in full each month. Essentially, credit cards provide consumers with unlimited short-term loans for free (assuming there’s no annual fee).

Credit cards don’t have a draw period — they remain open as long as the account is in good standing. The average credit card limit, according to the latest report from credit bureau Experian, is $30,365.

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Line of Credit vs Credit Card

A credit card — as the name implies — has a card connected to it, which allows the borrower to access funds. A line of credit doesn’t necessarily have a card connected to the account. Lines of credit tend to have lower interest rates and annual percentage rates (APRs) than credit cards and may have higher limits. So they may be better suited to large purchases, as noted above, that can be paid for over time.

Credit cards are easy to use for everyday purchases and often come with an interest-free grace period (from the purchase date until the payment date). Credit cards may provide rewards and perks that personal lines of credit do not. And applying for a credit card is usually a simpler process than the line of credit process.

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Credit Score Risk Factors to Consider

How someone manages personal lines of credit and credit cards will have an affect on their credit score and, therefore, their ability to borrow at advantageous rates. Here are some ways your line of credit may negatively influence your credit score:

•   Credit utilization. After a large purchase, your credit utilization percentage will rise. Credit utilization accounts for 30% of your credit score.

•   Payment history. Late or missed payments can negatively impact your history. Payment history accounts for 35% of your FICO score.

•   Credit history length. A new line of credit will lower the average age of your credit history. Length of credit history accounts for 15% of your score.

Consumers who are concerned about their credit score may want to take advantage of a free credit monitoring service to see how their day to day actions impact their score.

Using Multiple Credit Cards

How many credit cards should you have? As long as you can responsibly manage your credit cards and haven’t applied for too many new ones in a short timeframe, then the number isn’t likely to have a negative impact on your credit.

However, the more cards you have, the more payments and due dates you’ll have to juggle. Ask yourself whether any of these issues apply to you:

•   Multiple annual fees are taking a bite out of your budget.

•   Monitoring your cards for fraudulent activity has become challenging.

•   Knowing you have cards with low or no balances makes it easier to overspend.

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The Takeaway

The right number of credit lines varies by personal need and financial circumstances. Lines of credit include but aren’t limited to credit cards. What’s most important is to use them wisely to protect your credit score, avoid unnecessary debt, and manage your finances responsibly. It may help to know that the average American has about 4 lines of credit.

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How many lines of credit is good for your credit rating?

Specifics will depend upon your financial situation. Elements that go into credit score calculations typically include the borrower’s payment history (making payments on time is the biggest factor), outstanding balance amounts in comparison to limits, credit history length, having a good credit mix, and strategically applying (or not applying) for new credit accounts.

How many lines of credit is too much?

What’s most important is to have the right number for your financial needs and overall situation. Being able to responsibly manage the number of accounts you have is important since making payments on time is the biggest factor in your credit scores. While most Americans have about four lines of credit, that may be “too much” for some consumers.

What are some consequences of having multiple lines of credit?

It can be more challenging to keep track of payment dates and amounts, which may make it easier to make a payment late or miss it entirely. This can have a negative impact on your credit score. Plus, if accounts have annual fees, then having several of them can add up. Multiple lines of credit may also make it more difficult to spot fraud. That said, if someone can responsibly manage multiple lines of credit, then that may be the right number of accounts for them.

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