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.
The question of whether or not opening multiple credit cards hurts your credit score is a complex one, with no simple answer. While having multiple cards can be beneficial in terms of managing your finances and earning rewards it can also have a negative impact on your credit score if not managed responsibly.
The Impact of Multiple Credit Cards on Your Credit Score
Here’s how opening multiple credit cards can affect your credit score:
1. Hard Inquiries: Every time you apply for a new credit card, a hard inquiry is placed on your credit report. This inquiry can temporarily lower your credit score by a few points. However, the impact of hard inquiries diminishes over time, and the negative effect is usually minimal if you only apply for a few cards within a short period.
2. Credit Utilization Ratio: Your credit utilization ratio is the amount of credit you are using compared to your total available credit. This ratio is a significant factor in your credit score, and opening multiple cards can increase your total available credit potentially lowering your credit utilization ratio. However, if you start using a significant portion of your new credit, your credit utilization ratio will increase negatively impacting your score.
3. Average Age of Accounts: The average age of your credit accounts is another important factor in your credit score. Opening new cards lowers the average age of your accounts, which can initially hurt your score. However, as the new accounts age, the average age of your accounts will increase, eventually boosting your score.
4. Credit Mix: Having a mix of credit accounts, such as credit cards, installment loans, and mortgages, can positively impact your credit score. Opening a new credit card can diversify your credit mix, potentially boosting your score.
5. Responsible Management: Your ability to manage your credit cards responsibly is the most important factor in determining how having multiple credit cards will affect your credit score. Having multiple cards can actually improve your credit score as long as you pay your bills on time, maintain a low credit utilization rate, and refrain from opening too many cards quickly.
How Many Credit Cards Should You Have?
There is no magic number of credit cards that everyone should have. The ideal number depends on your individual financial situation, spending habits, and creditworthiness. However, here are some general guidelines:
- Start with one or two cards: If you’re new to credit, it’s best to start with one or two cards and build a good credit history before applying for more.
- Consider your spending habits: If you frequently make large purchases, you might benefit from having a few cards with different rewards programs to maximize your earnings.
- Be mindful of fees: Some cards come with annual fees or other charges. Make sure you understand the fees associated with each card before you apply.
- Manage your cards responsibly: Always pay your bills on time and keep your credit utilization low. Avoid opening too many cards in a short period.
Your credit score may be impacted by opening multiple credit cards in both positive and negative ways. It’s important to handle your credit cards sensibly to prevent damaging your score, even though they can help you manage your money, accrue rewards, and diversify your credit mix. You can choose the right number of credit cards for you by carefully evaluating your creditworthiness and financial status. Recall that using credit cards responsibly is essential to keeping your credit score high and reaching your financial objectives.
Compromised Cards
If a credit card company notices possibly fraudulent activity or suspects that your account number may have been compromised, they may suddenly freeze or cancel your card.
In the best-case scenario, your card will be blocked from use until you have verified with the credit card company that you are, in fact, on vacation in Bermuda and that it hasn’t been stolen. But you can’t make that phone call from the cash register because you’ll need to verify your identity with sensitive personal data. You’ll need another way to pay if you want to complete your purchase.
In the worst case scenario, you will receive a new account number from the company and will not have your old card for a few days until you receive your new card through the mail. Another possibility is that you could lose a card or have one stolen. You should probably have at least three cards ready, two of which you should carry with you and one that you should keep in a secure location at home. This way, you should always have at least one card that you can use.
Because of possibilities like these, it’s a good idea to have at least two or three credit cards. If you decide to only have one credit card, be sure to always have cash or a debit card on hand as a backup payment option. Check the fees, if any, and exercise extra caution when using prepaid debit cards. These cards provide convenience and security, but are they really worth it?
Downsides of Too Many Credit Cards
If you can’t afford to pay your bills, don’t need them, or don’t intend to use them for anything, even two credit cards may be too many.
Obtaining multiple credit cards in a short period of time is not recommended, even though getting a new credit card can occasionally raise your credit score by possibly lowering your total credit line utilization ratio. To counter this phenomenon, which has arisen with customers trying to game the system by applying for multiple credit cards in order to earn bonuses and then canceling their cards after fulfilling the spending requirements, many card issuers have even put rules in place. For instance, Chase has a policy known as 5/24 that prohibits approval if you have applied for more than five credit cards in the previous 24 months, regardless of the issuer.
Having multiple cards can mean multiple fees and interest charges accumulating in several places. There are annual membership fees associated with premium cards, and some cards have introductory rates that increase dramatically after a few months. Keeping track of this, even with relatively small balances, can become complicated.
Does Opening a New Credit Card Hurt Your Credit Score?
FAQ
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