Using a student credit card or secured credit card is a common first step to building credit, but now you may be wondering if having multiple credit cards is a good thing. More importantly, does having multiple credit cards hurt or benefit your credit?
While it’s possible that having more credit cards can increase your credit score, a more reliable strategy is to focus on responsible financial habits and card management. Making timely payments and keeping credit card balances low can have a much greater impact in the long run. Here’s what you need to know about how having two or more credit cards can affect your credit.
What constitutes a credit score?
The calculation of your credit score is based on several factors, including:
- Payment history – 35%: Making payments on time is the most important factor in your credit score, even if you can only make the minimum payment.
- Credit utilization – 30%: Credit utilization is the amount of credit you use compared to the amount available. Many experts suggest keeping this figure below 7%. For example, if you have a single card with a $1,000 credit limit, try to keep the outstanding balance below $70 and pay it off as soon as possible.
- Length of credit history – 15%: Credit history simply refers to the length of time you have been granted credit. In general, a longer credit history is generally considered better.
- Credit mix – 10%: This refers to the different types of credit accounts you have, such as revolving debt (like credit cards) and installment debt (like a mortgage or personal loan). However, don’t feel pressured to take out a loan if you don’t have one, as having credit cards alone can help you build a solid credit rating.
- New credit – 10%: This part of your credit score considers how often you apply for new credit. Having too many new credit applications can hurt your credit score, so it’s generally recommended to wait six months between credit card applications.
How does having multiple cards affect your credit score?
Having multiple credit cards can affect your credit score both positively and negatively, so you should carefully consider all aspects before making a decision.
Positive Impacts of Having Multiple Cards
Having more credit cards can increase your credit score and improve your financial health in several ways. For starters, having multiple cards means your credit utilization could decrease. Since you are extended more credit, you are using less of your overall credit limit, as long as you keep your balances low. Because credit utilization is such an important factor in your credit score, reducing your overall credit utilization could provide a nice boost to your score.
Having more than one credit card is also good because it gives you a larger financial cushion. If an emergency situation arises and you need to use a credit card, having more than one card gives you additional options and greater access to credit.
In addition, using multiple credit cards allows you to take advantage of perks and benefits that a single card may not offer. This can include things like additional travel protections, no foreign transaction fees, or an extended 0% introductory APR on purchases or balance transfers. If your cards allow you to earn cash back, points or miles, using them strategically can help you maximize your rewards.
Possible negative effects of having multiple cards
Does having multiple credit cards hurt your credit score? While it can offer many advantages, there can also be risks associated with having multiple credit cards.
The negative effects can start with the application. Applying for a credit card usually involves lenders making a thorough inquiry on your credit report. This may temporarily lower your score by a few points. While the effect may seem relatively insignificant, if you’re trying to get a mortgage or a new loan, a drop of just a few points could mean worse rates and terms.
While not a direct impact of having a second card, adding another card to your wallet could also encourage you to spend more than you can. Having access to more credit means you have a greater opportunity to get into debt. Not being able to pay off debt in a timely manner can have major consequences for your financial health and credit score. In addition, having too much debt on your cards can increase your credit utilization ratio, which can hurt your credit score.
Finally, having multiple credit cards requires you to stay extremely organized and vigilant. You’ll need to keep track of various balances, due dates, and more. Late or missed payments can cause your credit score to plummet while getting into too much debt can also have negative effects on your credit score and your overall financial health.
Steps to take to increase your credit
While having multiple credit cards can help increase your credit score, it’s not guaranteed. As overwhelming as it may seem to build credit, one of the best ways to positively impact your credit is to focus on good financial habits instead of worrying about how many cards you have.
Instead of trying quick fixes, try following some concrete steps that can help you build your credit and improve your overall financial health, including:
- Make payments on time – Paying your bills on time is the single most important factor that goes into determining your credit score. Focus on paying your bills on time and your credit score is sure to rise.
- Keep credit card balances under 7%: Credit utilization is the second most important factor in your credit score. If you keep your credit card balances low (or have paid them off in full), your credit utilization will decrease, and your credit score will increase.
- Spread out credit applications: Avoid applying for multiple credit cards or loans in a short period of time. Too many applications in a short period of time can affect your credit rating. Once you have applied for credit, it is best to avoid submitting another credit application for six months.
- Become an authorized user: If you have limited credit history, becoming an authorized user on the credit card of a trusted friend or family member can help you start building credit.
Did you know that a long credit history will be of great help to you?
We talk a lot about credit scores and what each one means. The more experience your credit report shows in paying your loans on time, the more information there is to determine if you are a good credit recipient. One of the formulas we recommend here is to look at your recent credit activity as a sign of your need. That is, if you apply for a large amount of credit in a short period of time, it may appear to lenders that your financial circumstances have changed negatively. Contact us for an in-depth look at this issue.
Finally, if you are new to the world of credit, consider purchasing a building product designed to help you establish and build credit. We don’t want to mislead you. There are many financial institutions that have developed a variety of products and services designed to help consumers new to the world of credit establish and build credit, but they are short term and don’t guide you 100% with the information you need to know. HELPING HANDS FINANCIAL WILL HELP YOU.
We have an amazing program that guarantees your results or your money back. Not everybody qualifies. We have a very strict process for selecting our customers. As a matter of fact, only 37% of the applicants qualify. But if you do qualify, we’ll help you get to the 700 club, guaranteed.
