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While there is no magic number of credit cards to apply for, following these tips will help you get on the right track financially. Your credit scores are impacted by the number of cards you own and their combined credit limits, which in turn affects your capacity to obtain credit-worthy items like auto loans and apartment rentals.
The short answer: It depends. While having multiple credit cards doesn’t automatically hurt your credit score it can indirectly impact it in a few ways. Let’s dive deeper into the details.
The impact of multiple credit cards on your credit score:
- Credit utilization: This refers to the amount of credit you’re using compared to your total available credit. Having multiple cards can increase your total available credit, but if you’re not careful, it can also lead to higher balances and a higher credit utilization ratio. Aim to keep your utilization below 30% for optimal credit health.
- Hard inquiries: Every time you apply for a new credit card, a hard inquiry is placed on your credit report. Too many hard inquiries in a short period can lower your score. However, the impact of hard inquiries diminishes over time.
- Average age of accounts: This factor considers the length of time you’ve had your credit accounts open. Closing older accounts can shorten your average age and potentially lower your score.
Here’s a breakdown of the potential scenarios:
Scenario 1: You have several credit cards, but you pay them off in full each month and maintain modest balances on them. Your credit utilization is excellent, and you’re not adding too many hard inquiries. In this instance, having several credit cards is probably not going to lower your score—in fact, it might improve it by broadening your credit mix and increasing your available credit.
Scenario 2: You have multiple cards, but you carry high balances and struggle to pay them off each month. Your credit utilization is high, which can significantly lower your score. Additionally, if you’ve recently opened several new cards, the hard inquiries can further impact your score.
Scenario 3: You have multiple cards, but you rarely use them. This might seem like a good thing, but it can actually hurt your score in the long run. Inactive accounts can be closed by the issuer, which can shorten your credit history and lower your average age of accounts.
The following advice can help you handle several credit cards without lowering your credit score:
- Keep your balances low and pay them off in full each month. This will keep your credit utilization low and avoid interest charges.
- Avoid opening too many new cards in a short period. Aim to space out your applications to minimize the impact of hard inquiries.
- Use your cards regularly and responsibly. This will help you build a positive credit history and keep your accounts active.
- Monitor your credit reports and scores regularly. This will help you identify any potential problems and take steps to correct them.
Remember, responsible credit card use is key to maintaining a good credit score. By following the tips above, you can enjoy the benefits of having multiple credit cards without jeopardizing your financial health.
Additional resources:
- NerdWallet: How Many Credit Cards Should I Have?
- Investopedia: Can Having Too Many Credit Cards Hurt Your Credit Score?
How many credit cards should I have?
The sweet spot for you as a person is determined by your spending patterns and your capacity to pay all of your bills on schedule.
Americans on average have three credit cards and 2. 3 retail (store) cards, according to a 2021 report by Experian. Most people build their credit portfolio over time as they age and their credit needs expand.
But it’s crucial to remember that in order to apply for a credit card, you must be at least 18 years old. If you’re younger than 21, it could be challenging to get approved.
As you start out with credit, It’s a good idea to focus on building good financial habits. Having a reliable income is only one piece of the puzzle. Important traits include being well-organized, having a firm grasp of money management, and being able to meet deadlines.
How many credit cards is too many or too few?
Credit scoring formulas don’t punish you for having too many credit accounts, but you can have too few. Five or more accounts, which can include a combination of loans and credit cards, are recommended by credit bureaus as a reasonable goal to work toward over time.
Having very few accounts can make it hard for scoring models to render a score for you. Four or fewer accounts is generally considered to be a “thin file. A thin file is more difficult to score highly than a fatter one, and thin files may also be seen as riskier by lenders.
Additionally, if you have a thin file rather than more accounts, your credit actions may have a greater impact on your scores. As an illustration, consider how little money you need to spend on a few cards to use up most of your credit limit. The amount of credit that you use is known as credit utilization, and individuals with the highest scores typically use less credit than the 2010% of their limits. Generally, anything below 30% of your limits will put you in a good position. More cards may help you with keeping credit utilization low.
However, if managing multiple credit cards becomes overwhelming and you fail to make a payment, it can seriously harm your credit score. Make sure youre able to stay on top of due dates.
