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How Does Having Multiple Credit Cards Affect Your Credit Score?
August 30, 2024
When you’re trying to boost your credit score, it can help you out a lot to widen your credit footprint — and one way to do that is to set up multiple credit card accounts.
By setting up multiple credit card accounts, you’ll maximize your chances of increasing your credit score. But having loads of credit cards won’t do your credit score any good if you’re not using all of those cards responsibly.
There are a few key points you’ve got to consider before getting multiple credit cards. Fortunately, we’ve got you covered.
This guide will explain how having multiple credit cards affects your credit score, the benefits of having multiple credit cards, the risks of having too many credit cards, and whether it’s best to have as many credit cards as possible.
How can opening one or more cards affect your credit score?
Believe it or not, your credit score has a lot more to do with how you’re using your credit cards than how many credit cards you have. But having multiple cards can certainly affect your score both positively and negatively.
Whether you have one credit card or seven, and whether you are a young adult or nearing retirement, your credit score is going to take a hit if you pick up debt that you aren’t able to pay off.
That being said, if you’re using multiple credit cards to make purchases that you’re then paying off before your balance rolls over to the following month, having multiple credit cards in good standing will generally increase your credit score. This is because a higher number of cards means a higher combined credit limit.
If you have a high limit and are only using a relatively small proportion of that limit every month, the algorithms that the three big credit bureaus (Experian, Equifax, and TransUnion) use to work out your credit score will reward you for that responsible spending. Credit experts recommend that you try to use around a third or less of your available credit, but it’s not an exact science.
This part of the credit algorithm is called “credit utilization.” Your credit utilization ratio is the percentage of your available credit that you end up using, and the amounts you owe on all of your accounts make up about 30% of your FICO Score.
The Fair Isaac Corporation (or ‘FICO’) is one of the top credit-rating institutions in the U.S. and uses various datapoints (such as credit utilization) to generate a three-digit credit rating.
While there are a few different credit scoring models that agencies can use, it’s usually your FICO Score that credit card companies look at when they’re checking your credit risk.
Translation: you need to make sure you’re spending responsibly with your multiple credit cards so that those cards help your credit score rather than hurt it.
What are other benefits of having multiple credit cards?
Having multiple credit cards isn’t all about trying to boost your credit score. There are several other key benefits you should bear in mind before deciding whether to settle on just one card.
These include increasing your available credit limit, the ability to maximize your potential rewards, and a number of other great perks.
Let us explain how each of these works.
Increase your credit limit
At the end of the day, one of the biggest factors in your FICO Score is how you’re utilizing your available credit. Credit utilization tells the big credit agencies how well you’re using your credit cards and other revolving debts — and the lower your credit utilization ratio is, the better your credit score is going to be.
Every time you add a new credit card to your wallet, you’re increasing your available credit limit. This will lower your utilization ratio, but only as long as you’re keeping your spending under control.
Maximize rewards
Another benefit of having multiple cards is that you can maximize your potential rewards. If you have more than one rewards credit card or a travel credit card, you can generate higher levels of cash back, airline miles, rewards points, and more.
For example, you might have one credit card that offers triple rewards points to spend with hotel partners, but it doesn’t offer any rewards for grocery stores or gas stations. By picking up a card that does offer bonus rewards for these categories, you can benefit from both rewards types by spending on each card interchangeably.
Get great perks
Rewards credit cards are a great way to get free stuff just for spending on everyday expenses. But you’ll also find quite a few credit cards that offer other benefits.
One of the best perks you can find on a card is a 0% intro rate.
For example, you might consider applying for a card with a 0% APR for 12 months on all purchases. That means that you wouldn’t have to pay any interest on purchases made within the promotional period — as long as you settle your credit card balance before that period is over.
There are other types of credit cards with great intro rates, too. Some cards offer 0% balance transfers for a certain number of months, while others feature a 0% intro APR on foreign transactions.
What are the risks of having multiple credit cards?
Although there are several benefits to getting multiple credit cards, it’s important to bear in mind that there are some risks here, too.
First and foremost, newer credit card accounts are going to lower the overall average age of your credit history.
Simply put, the scoring algorithms that credit bureaus use tend to reward you for using your credit for a longer period of time. This means that if you have a new account and you haven’t had ample time to show you’re using that account responsibly, your credit score will likely decrease slightly.
Likewise, filling out a credit card application for a new credit card will normally lead to a hard inquiry on your credit report. A hard pull does cause a small (and temporary) dip in your credit score of a few points — and so, if you’re applying for multiple credit cards at once, all of those credit checks can take a decent chunk out of your score.
Another risk to consider is the temptation of having a higher credit limit. When you have multiple credit cards, you have access to a higher overall limit. In this case, the extra spending potential can be tempting. But if you end up spending more than you can handle to pay off each month or carry over a big balance from month to month, your credit score will definitely be damaged.
Finally, managing multiple credit cards means more dates and numbers to keep tabs on. If you’re not great at keeping track of your finances, increasing the number of cards with payments due will increase your risk of accidentally making late payments. Late payments can damage your credit — although this can normally be avoided by setting up direct debits or autopayments.
Is it best to have as many credit cards as possible?
The short answer is: no, it’s not better to have as many credit cards as possible. But there’s a bit more to it than that.
The simple truth is that there’s no perfect number of credit cards you should be aiming to have in your purse or wallet. According to Experian, the average consumer has 3.84 credit cards. But that doesn’t mean that having three or four credit cards is going to be right for you.
You should only apply for credit cards with perks you genuinely want or that you think you’d take advantage of. You’ll also need to think extra hard before applying for a credit card that includes an annual fee, because the rewards you might generate by using that card (like air miles or membership rewards points) will need to be higher than that fee to make getting the card worth it.
Because there’s no right or wrong number of credit cards you should have, you should instead focus on using the cards you already have responsibly.
As long as you’re keeping your card balances low and paying your bills on time, it doesn’t matter whether you have ten credit cards or one. Your credit score should remain high.
Conclusion
When you’re spending responsibly, setting up multiple credit card accounts can be one way to boost your credit score.
But it’s important to note that opening up loads of new credit card accounts isn’t a great idea for everybody. You have to think long and hard about why you’re setting up each new account and do your research to make sure the card you’re looking at is right for you.
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