Key Takeaways
- It’s a commonly held myth that having a lot of credit cards hurts your credit score.
- How you use your credit is what affects your credit score.
- Make sure you know your utilization rate and that you’re responsible in your spending when it comes to your credit cards.
Most of us understand the basics of what goes into a credit score, though we may be vague on the specific factors. One of those factors you may have come to believe negatively affects your credit is the number of credit cards you have – with more credit cards being an unfavorable variable in the calculation of your score. Well, as a recent MarketWatch article points out, it’s a myth that having “too many” credit cards negatively impacts your credit score.
This may seem surprising, as you might think that having a lot of credit cards equates to holding a lot of debt. However, data scientists have found that people don’t really change their behaviors when it comes to money – if they’ve been responsible in the past with just a couple of credit cards, they’ll continue to be responsible regardless of the number of cards they have.
Of course, the credit bureau agencies (Equifax, TransUnion, and Experian), do pay attention to your credit cards, but what they’re looking at is your utilization rate. That’s the overall highest balance you carry on your credit cards in a month. If this rate is over 30%, they’ll ding your credit score. For instance, if you have five credit cards, with $10,000 available on each one, for a total credit limit of $50,000, you don’t want to use over $15,000 each month (30% of $50,000 = $15,000). So be mindful of the percentage of your credit you’re using.
Now, there are certainly good reasons for not wanting to have a lot of credit cards. As mentioned, there’s the potential to carry a lot of debt if you have a lot of credit cards. Another reason may be that you are working to accumulate points, airline miles, or cash back via credit cards – and spreading your purchases across a number of cards dilutes the benefits. Instead, you may want to concentrate on using just one or two cards, reaping greater loyalty points by doing so.
If these aren’t concerns, it’s okay to have multiple credit cards, and it may be helpful to know that you have them as backups if some cards aren’t accepted at various establishments.
It’s up to you to decide what number of credit cards you want to have. Just make sure you continue to keep good control over your debt, follow your budget, don’t overspend, and don’t go over your utilization rate – and you’ll build your credit score in the process. Until next time, enjoy.
