When trying to gain an understanding of credit cards and the perfect number we should have on hand for success, opinions certainly differ. Although personal opinions on this subject vary, experts and fact-based conclusions indicate the right number of credit cards depends on numerous factors. After considering the implications of holding multiple accounts, balances, and borrowing bandwidth, you may be better positioned to answer the question: “How many credit cards should I have?” and decide if now is the right time to apply for a new credit card.
Few would disagree that having numerous accounts and driving up balances ranks among the most unsustainable money management practices. Yet, experts generally agree that multiple credit cards can improve your FICO score. As long as you possess the income to lower monthly balances and make on-time payments, more than one credit card can maintain or elevate a good FICO score. That’s largely because repayment history makes up 35 percent of a FICO score.
By that same token, high balances eat into your three-digit creditworthiness number. One of the metrics involves how much of your credit potential is being utilized during a given month. Lenders see high credit utilization as a red flag that a loan applicant is overextended and constitutes a significant lending risk. As a general rule, how many cards you possess is not necessarily as important as how you manage the balances and monthly payments.
In terms of how many credit cards the average American holds, Experian studies peg the number between three and four traditional accounts, not including store loyalty cards. That range can support effective credit utilization as long as you make on-time payments. Some experts advocate for up to five different cards to enhance your mix of accounts, which affects 10 percent of your FICO score.
Maxing out a credit card can have either a devastating impact on your creditworthiness or score additional points. The determining factor involves how you handle the payment at the end of the month.
Making a major purchase that requires the full use of a credit card’s limit is not necessarily a problem. As long as you pay it off or significantly lower the balance relatively quickly, you’re establishing a sound repayment history. On the other hand, failing to drive down credit card balances can weigh a FICO score down based on repayment history and credit utilization calculations. Although repayment history comprises 35 percent of a FICO score, utilization runs a close second at 30 percent. Carrying excessive debt across several credit cards can have a debilitating effect. Lenders typically like to see a balance that includes no more than 30 percent of a person’s borrowing bandwidth actually in play.
To answer the question succinctly, it doesn’t matter a great deal if you max out a card for a month to make a major purchase or deal with holiday gift-giving. But if you delay in paying off the balance or carry more than 30 percent balances across all your available credit, your credit score could be negatively impacted.
The short answer is usually yes. Having multiple credit cards helps augment a FICO score based on the mix of accounts metric. When Experian, Equifax, and TransUnion estimate creditworthiness, diversification accounts for 10 percent of the score. Although not as impactful as repayment history or credit utilization, 10 percent can mean a significant difference in interest rate payments over the life of a loan.
There are several caveats to possessing multiple credit cards, and the first involves a mix of accounts. Acquiring three Discover cards doesn’t necessarily demonstrate diversification. Therefore, consumers are not effectively tapping into the 10 percent based on a mix of accounts. Another issue stems from the FICO calculation based on the length of credit history. Relatively new credit cards do little to increase the 15 percent allotted to this creditworthiness measure. Older credit cards bring a greater measure to the table.
Compounding the issue, hard credit inquiries occur when people apply for loans and credit cards. These hard pulls typically cause a score to dip for a period. It’s important to apply for a Visa Credit Card only after conducting due diligence and speaking with your local financial institution. This process helps people avoid unnecessary credit inquiries that can cause a score to dip.
After consistent use and repayment are established with the account, credit scores tick up again. So the answer is yes, having more than one credit card impacts your credit score in a wide variety of ways.
If you have a tendency to overuse credit cards and struggle to pay down balances, fewer credit cards might be a good personal policy. It’s important to cancel cards long before you plan to apply for an automobile loan, line of credit, or mortgage. Lenders may see sudden reductions in borrowing bandwidth as a red flag. It may also come as something of a surprise, but canceling credit cards can actually hurt your credit score in the following ways.
Average Age of Accounts: Credit bureaus weigh the length of credit history based on the average age of all your accounts. This metric accounts for 15 percent of your FICO score. Canceling an old credit card can negatively affect this facet.
Credit Utilization: This metric can be something of a double-edged sword. On the one hand, lenders want no more than 30 percent of your borrowing bandwidth used at a given time. On the other hand, canceling a credit card erases that available bandwidth.
If you feel uncomfortable possessing more than three or four credit cards, it may be wise to cancel the newest or the one with the smallest limit first. From a credit score perspective, maintaining a reasonable stable of accounts and keeping your credit utilization under 30 percent helps optimize your FICO score. Strategies such as sticking underused cards in a secure place like a safe, generally support a robust score and borrowing capacity.
Many of the negatives associated with having more than the average number of credit cards stem from money management issues. Dealing with multiple credit card statements adds to an already full plate of bills to manage.
Rather than get bogged down in ways to stay on track and juggle an excessive amount of credit card bills, savvy borrowers apply for a low-interest Visa Credit Card and consolidate outstanding debt into one easy-to-manage payment. Paying off multiple accounts and saving money with a low-rate Visa Credit Card allows people to stick the higher-interest plastic in the safe and maintain a good credit score.
If you’re still uncertain about how many credit cards you should have, or if you’re uneasy about which credit card is best for your unique situation, contact CCCU today.
If you’re ready to apply for a Visa Credit Card, CCCU has the low rate, rewards, or student credit card for you!
For more answers to questions like "how many credit cards should I have," review our "The Best Credit Cards Always Offer These Hidden Benefits" complete guide!