If you have ever spent your way into a large amount of credit card debt, you may argue that the answer is definitely yes. Should you have more than one credit card?
It’s certainly true that taking out multiple credit cards can make your debt repayments unsustainable. But there’s no hard and fast rule when it comes to the number of credit cards you should own, and having multiple credit cards can even be advantageous. The majority of experts concur that, depending on how well you manage them, having several credit cards can either improve or lower your credit score.
This hasn’t stopped Americans from taking advantage of the credit cards offered to them. A recent Experian report shows that the average American now holds around four credit cards. That figure is down slightly from previous years, and it follows a pattern of U. S. consumers shedding credit card debt as the coronavirus pandemic spread financial uncertainty.
Owning a home is a significant milestone in life and securing a mortgage is often the key to achieving this dream. However various factors can influence your mortgage approval, including your credit history and the number of credit cards you possess. This article delves into the impact of having multiple credit cards on your mortgage chances, exploring both the potential benefits and drawbacks.
The Role of Credit Cards in Mortgage Approval
Credit cards play a crucial role in determining your creditworthiness which is a major factor in mortgage approval. Mortgage lenders assess your credit history to evaluate your ability to manage debt responsibly. This includes factors like your payment history, credit utilization ratio, and the length of your credit history.
Impact of Multiple Credit Cards
Having multiple credit cards can have both positive and negative effects on your mortgage chances:
Positive Effects:
- Building a Strong Credit History: Using multiple credit cards responsibly and paying your balances on time can help you build a solid credit history, demonstrating your ability to manage credit effectively. This can lead to a higher credit score, which can improve your chances of mortgage approval and potentially secure lower interest rates.
- Increased Credit Limit: Multiple credit cards can contribute to a higher overall credit limit, which can improve your credit utilization ratio. This ratio measures the amount of credit you are using compared to your total available credit. A lower credit utilization ratio is generally viewed favorably by lenders.
- Rewards and Benefits: Many credit cards offer valuable rewards programs and benefits, such as cash back, travel points, and purchase protection. Utilizing these perks can help you save money and maximize the value of your credit card usage.
Negative Effects:
- Increased Debt Risk: Having multiple credit cards can increase the temptation to overspend and accumulate debt. If you struggle to manage your credit card balances, it can negatively impact your credit score and make it more challenging to qualify for a mortgage.
- Credit Inquiries: Applying for multiple credit cards can result in numerous credit inquiries, which can temporarily lower your credit score. While the impact is usually minor, excessive inquiries within a short period can raise concerns for lenders.
- Potential for Mismanagement: Juggling multiple credit cards can be challenging, and failing to keep track of payments or exceeding credit limits can lead to late fees, interest charges, and damage to your credit score.
Balancing the Benefits and Risks
It’s important to use credit cards responsibly if you want to maximize their beneficial effects on your chances of getting a mortgage:
- Pay Your Balances on Time: Always prioritize paying your credit card balances in full and on time to avoid late fees and interest charges.
- Keep Your Credit Utilization Low: Aim to keep your credit utilization ratio below 30%. This demonstrates your ability to manage credit responsibly and avoids raising red flags for lenders.
- Avoid Maxing Out Your Cards: Avoid using your credit cards to their full limit, as this can negatively impact your credit utilization ratio and raise concerns about your ability to manage debt.
- Choose Cards with Rewards: Opt for credit cards that offer valuable rewards programs and benefits that align with your spending habits.
- Monitor Your Credit Report Regularly: Regularly check your credit report for errors or inaccuracies that could negatively impact your credit score.
Having multiple credit cards can be beneficial for building a strong credit history and maximizing rewards, but it’s essential to use them responsibly to avoid potential drawbacks. By managing your credit cards effectively, you can increase your chances of mortgage approval and secure favorable loan terms. Remember, responsible credit card usage is key to achieving your homeownership goals.
How Many Credit Cards Should You Have?
There is no magic number of cards you should have because everyones situation is different. One could make a compelling case for owning a credit card in order to benefit from its inherent convenience, security, and other advantages. Whether you need the additional credit lines to meet your monthly spending needs or want to use your regular purchases to leverage rewards like cash back, points, or airline miles can help you justify owning multiple credit cards.
The Impact on Your Credit Score
Having a lot of credit cards may also reflect risk to lenders and result in a decrease in your credit score. The mere fact that you have numerous open and accessible credit lines can make you appear like a possible risk to the next lender, even if they are all paid off.
It is therefore advisable to only apply for and maintain the cards that you require and can justify using based on your credit score, ability to pay balances, and rewards goals, even though there is no hard and fast rule regarding how many credit cards is too many.
Kevin O’Leary: How Many Credit Cards Should You Have?
FAQ
Is it bad to have too many credit cards when buying a house?
Do lenders look at how many credit cards you have?
Is it a bad idea to have multiple credit cards?
How much credit card debt is OK when buying a home?
Do credit card accounts affect your chances of getting a mortgage?
If you have a lot of credit card accounts but aren’t carrying debt and not having trouble managing your accounts, this likely won’t hurt your odds of getting approved for a mortgage. But if you’re struggling to manage credit card accounts and owe a lot of money, it could be a red flag for a mortgage lender.
Can you get a mortgage if you have multiple credit cards?
But if you’ve got multiple credit cards and are struggling to manage the accounts, you could run into difficulty qualifying for a mortgage. If you’re carrying a lot of debt on multiple credit cards, and not paying off your balances every month, it could be a red flag for a mortgage lender. Are you relying on credit to get by?
Do credit cards hurt your ability to get a mortgage?
Plus, using credit cards and paying them off on time is a great way to keep my credit score in good shape, meaning I’ll pay less to borrow money (say, in the form of a mortgage). If this describes your relationship with credit cards, having more of them than the average shouldn’t hurt your ability to get a mortgage.
Should I open a new credit card account when getting a mortgage?
Opening a new credit card account when you’re trying to get a mortgage can complicate your loan application. A new account may cause your credit score to dip temporarily and may raise questions about the stability of your finances. If you’re considering a new card and a new home at the same time, hit the pause button and read on.