Your credit score can determine whether you get the mortgage you need for your dream home or whether you qualify for cheap car insurance. There are many factors that influence your credit score and one you might not think about is the number of credit cards you have. So how many credit cards do you need? We’ll go over what you should consider in order to answer that question.
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The Number of Credit Cards You Should Have
There’s no hard rule saying that you need two or three credit cards in your wallet. The ideal number of credit cards you should have depends on a few different factors, including your borrowing history, payment habits and the age of your credit accounts.
For example, you might not feel comfortable having too many credit cards if you’re a new borrower with only a few credit accounts (note that personal loans, mortgages, student loans and auto loans are all considered credit accounts). On the other hand, having multiple accounts may work for well-established borrowers who consistently pay their bills on time and have low debt-to-credit ratios (also known as credit utilization ratios).
The Case for Having More Cards
There are a few reasons why you might want to consider owning more than one credit card. If you’re strategic, you can potentially boost your credit score by having several different credit card accounts open at the same time. But the key is to keep an eye on your credit utilization ratio.
Your credit card utilization ratio is the amount of credit you’re using relative to your total credit limit. That matters because the amount of debt you owe accounts for 30% of your FICO® credit score. So a good rule of thumb is to keep your credit utilization ratio under 30%. Opening a new credit card account automatically lowers your credit utilization ratio.
If you have a few credit cards, you may be able to spread out your card balances. That can be helpful when you’re trying to avoid getting too close to a single card’s credit line. Plus, by having multiple credit cards you’ll have a higher total credit limit.
The last, but possibly most important case for multiple credit cards is that they can help you maximize rewards. For those who have a high attention to detail, this is an easy task. For the rest of us, there are smartphone apps like wallaby that allow you enter your card and other details such as categories selected to help you make the decision about which card to use at the right time. They use geo-location services to know where you are and if the shop is on a list of approved vendors then they shoot you a push notification.
The Case for Having Fewer Cards
Before getting another credit card, you might want to consider how it’ll affect the way lenders assess your credit risk. Opening too many new accounts in a short period of time could suggest that you’re impulsive or desperate for additional lines of credit. If it doesn’t seem like you’re a responsible borrower, you may have a hard time qualifying for a loan or a credit card in the future. (Of course, this may be less of an issue if you have a long credit history.)
Another factor to consider is the potential toll a hard inquiry could take on your credit. It’s important to remember that any application for a new credit card counts as a hard inquiry that may cause your credit score to dip slightly.
There’s no magic number for the number of credit cards that everyone should have. After all, the way your credit cards affect your credit score depends on the way you use them. You’ll have to think about your financial needs and habits in order to decide how many credit cards you should have at your disposal.
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