How Many Credit Cards Should You Have To Improve Your Credit Score

by Timothy Lickteig on December 2 2020

You know that owning a credit card is the best way to build your credit history. So does that mean that owning multiple credit cards will help improve your credit score faster?

There is no definitive answer to this question. Owning multiple cards can help your credit score but only if used smartly. Reckless use can actually do more harm than good. When it really comes down to it, you can even improve your credit score with just one credit card.

Before discussing the ideal number of credit cards to own, here’s a look at how credit score is determined. This will help you decide whether it would benefit you to apply for one or more additional credit cards.

How Credit Score is Calculated

These are the main factors that go into determining your credit score:

  • Payment History

Your payment history is the single largest determining factor, accounting for 35% of your total credit score. Credit card companies are quick to report late payments to the credit bureaus. Even a single late payment on your credit card can hurt your score. Repeated late payments can damage your credit score significantly.

  • Debt-to-Credit Ratio

This accounts for 30% of your total credit score. Debt-to-ratio measures the outstanding debt on your credit card in relation to your available credit. It is essentially an indication of how close you are to your credit limits on all your cards. Ideally, you want to keep your debt-to-credit ratio to less than 30%. Over 30% can drag down your credit score.

  • Length of Credit History 

Credit history is an indicator of how responsible you are as a borrower. Making on-time payments consistently on all cards helps establish a responsible credit history and contribute 15% to your credit score. Closing one or more older accounts can lower your average age of credit, which can hurt your score.

  • New Credit 

Opening a new line of credit can result in a drop in your credit score. Before approving your application for a new card, lenders will make a hard credit check. This may cause your credit score to drop a few points. When the account is actually opened, your credit score may drop a few more points. New credit affects 10% of your total credit score.

  • Types of Credit 

Most people tend to have several different types of credit accounts. A typical credit portfolio includes mortgage, vehicle loans, retail accounts, and installment loans in addition to credit cards. How you manage debt across all of these accounts contributes to 10% of your credit score.

Now you know how credit score is calculated but that still doesn’t answer the main question. How many credit cards should you have to improve your credit card score?

How Many Credit Cards Should You Have?

There is no magic number that’s right for everyone. Everybody’s situation is unique. At the very least, you should have one card to start building your credit history. Making on-time payments consistently with this one credit card is the best way to keep building your credit steadily. Consider adding another credit card only if and when you need it.

There are pros and cons to owning multiple credit cards. Different cards offer different rewards. Some cards may offer cashback on gas, others offer cashback on groceries, and still others offer flight miles or hotel rewards. This is one of the main reasons why people own several cards.

There are a few downsides to owning multiple cards. The first is the challenge of keeping track of multiple payments and due dates. This increases the risks of forgetting bill payments, which can hurt your credit score. The second is the tendency to overspend just because you can. If you cannot cover the payments in full by the due date, there will be penalty fees and damage to your credit scores. 

How Many Credit Cards is Too Many?

That depends. Yes, it’s frustrating to not have a definitive answer but truly, it depends on your financial circumstances and spending habits.

To get started, you need one card and you need to use it responsibly. The second card may be one too many if you are already struggling to make payments on your first card. Consider getting a second card if, and only if, you can afford to pay off both bills every month. Otherwise, that second card will do you more harm than good.

Want to add a third card to your collection? Stop and take stock of your financial situation first to determine if it is worth it. Even if you decide you can afford it, wait a while before applying for the third card. Every credit card application triggers an enquiry on your credit history. This causes a drop in your credit score. Your score drops a few more points when the account is actually opened. Applying for several credit cards within a short time can result in a sharp drop in your overall score. Ideally, you should space your applications at least six months apart.

How to Improve Your Credit Score Regardless Of Number of Credit Cards

Here are five things you should stay focused on doing to improve your score, regardless of how many cards you own:

  1. Clear all outstanding bills in full every month.
  2. Make all payments on time every time.
  3. Avoid maxing out your credit. Lower utilization is better for your credit. Aim for lower than 30% utilization.
  4. Don’t close credit card accounts unless you have a compelling reason.
  5. Don’t apply for multiple credit cards within a short time. Keep at least six months between applications to avoid multiple credit checks at the same time.

Ultimately, how many credit cards you own does not affect your score as much as how you manage the cards you have. Using your credit cards responsibly is the key to improving your credit score.  

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