Credit cards are not inherently evil. People can have equally good (or bad) credit scores, no matter how many credit cards they have in their wallet. Credit cards don’t get people into debt, people get themselves into debt. However, how you use your credit card(s) can drastically affect your credit score.
There are some basics about how best to use credit cards. If you can master these guidelines for using your existing cards, then adding more may be beneficial. If maintaining these guidelines with the couple of cards you have is difficult, then you’re probably better off declining any future credit card offers.
Using Too Much Credit
One of the biggest problems with having several credit cards is that too much of your available credit is being used at any one time. This can negatively affect your credit score. Credit cards with high balances drop your credit score. Thirty-percent of your FICO (credit) score is determined by how much of your available credit you are using. If you have nearly maxed-out all your cards – that’s bad. While using only 10% of your credit limit is good. This “credit utilization ratio” is calculated by looking at your total available credit across multiple cards. So, if you are disciplined and know how to keep your balances low and make your payments on time, a new card that boosts your available credit could be beneficial to your score. A good bit of advice is to have no more than 3-4 credit cards at any time. This will allow you to keep track of your balances and available credit.
Even more important than your credit utilization ratio, is your ability to pay your bills – that includes credit cards – on time. Payment history accounts for 35% of your credit score. It won’t matter that you have ten cards, all with low balances if your credit card bills are never paid on time. Opening a new card to improve your credit utilization ratio will be useless if you forget to pay the bill.
You can’t clean-out your wallet the same way you clean-out your closet. Just because a card is old or hasn’t been used in the past year does not mean that it should be trashed in favor of a brand new card. Lenders and the credit bureau take comfort in seeing someone who can maintain an account for a long period of time. If you’ve managed a credit card properly (keeping the balance low and paying on time), you want to keep that card for as long as possible. In fact, the longer you can keep a card, the better.
Ready to Juggle?
If you read the above credit cards tips and thought “Who doesn’t know that?”, you might be ready to juggle and successfully manage multiple credit cards. But before you embark on an application spree, here are some words of caution.
- Don’t apply for multiple cards all at once. Even if you are stellar at managing multiple payment schedules, your credit score takes a hit every time you apply for credit. Multiple inquiries for your credit report reflect negatively because it looks like you’re desperate for money.
- Don’t be surprised if your credit card portfolio scares lenders. Even though your credit score is in good shape, lenders might not like the idea of you having access to so much credit – especially if you have a short credit history. Lenders may worry that you will max out your cards and possibly default on your loan.
- Don’t ignore your statements. You may have paying bills down to a science – but simply paying your cards based on the calendar and saving receipts could get you into trouble. Having multiple cards makes you more vulnerable for identity theft. If you ignore your statements for a couple of months because you haven’t used the card – fraudulent expenses could be going unchecked.
As with anything related to your credit score, the best thing you can do is pay your bills on time. If you feel that you have more cards than you can handle and payments are getting missed, consider closing some of the newest accounts or the accounts with the lower credit limits – this will simplify your payment schedule without sacrificing your credit history or your credit utilization ratio.