Having a credit card can help you improve your credit score over time as you make timely payments and manage how much credit you're using. So, you may be wondering whether you should have multiple credit cards to build credit.
Whether you have two credit cards or five, the impact they'll have on your credit score will depend on how responsibly you use your cards. Let's dive deeper into how having multiple credit cards can help or hurt your credit score, how many cards you should have, and some tips to build your credit.
How multiple credit cards can help your credit score
Here's how having multiple credit cards can help you build credit:
1. Credit utilization ratio
Your credit utilization ratio, or the percentage of available credit that you're using, is one of the most important factors that makes up your credit score. Having a low credit utilization ratio can have a positive impact on your score because it shows that you're not using too much of your credit. You should aim to keep your credit utilization ratio below 30%, since using more than that will bring your credit score down.
Having multiple credit cards can increase your credit limit, which can lower your credit utilization ratio. If you have a credit card with a $1,000 spending limit and spend $300 per month, for instance, your credit utilization ratio is 30%. If you get a second credit card with a $1,000 credit limit and continue to spend $300 per month on both cards combined, your utilization will decrease to 15%. The lower your credit utilization ratio, the better the impact on your credit score.
2. Positive payment history
Your payment history, which includes any on-time, late, or missed payments on your credit accounts, is the most important factor of your credit score. Your positive payment history stays on your credit report for 10 years, so paying your bills on time is a great way to build credit. If you have multiple credit cards, making timely payments for all of them can help improve your credit score.
How multiple credit cards can hurt your credit score
Although having multiple credit cards can help you build credit, there are also a few ways it can hurt your credit score:
1. Credit history length
The average age of your credit history is another factor that affects your credit score, and a longer credit history helps you build credit. Getting multiple new credit cards will decrease your credit history's average age, which can lower your credit score. So, make sure that you only apply for credit cards you need and try not to open too many new cards.
2. Hard inquiries
Each time you apply for a new credit card, the issuer will conduct a hard inquiry into your credit history when deciding whether to approve you. Hard inquiries will show up on your credit report and can drag your score down temporarily, especially if you apply for multiple credit cards at once. This is another reason why you should try to limit how many new credit card accounts you open, especially in a short time period.
3. Negative payment history
Getting more credit cards increases the amount of bills you have to pay each month, which can be hard to keep track of. Additionally, having more credit cards may make it tempting to overspend, since you'll have more available credit. Both of these issues can lead to missed or late payments, which will hurt your credit score. Before applying for new credit cards, make sure you'll be able to pay off the balances in full and on time.
Should I get more credit cards to build credit?
You should only get more credit cards to build credit if you know you can pay off your balances on time and can maintain a low credit utilization ratio. As long as you won't overspend and can keep track of your bills, having a few more credit cards may help you improve your credit score. Just remember that applying for too many cards in a short amount of time can bring down the average age of your credit history and cause multiple hard inquiries, which can drag your score down.
It's also important to note that there's no perfect number of credit cards you should have. The right number for you depends on your spending habits and how easy it is for you to keep track of your bills. And if you decide to apply for more credit cards, make sure you choose options with rewards and perks that you know you'll use.
How to improve your credit score
If you're looking for ways to improve your credit score, here are some tips:
1. Pay your bills on time
A history of consistent timely payments is one of the best ways to build credit, so try to pay all of your bills on time. If you have trouble remembering when your payments are due, you can set up automatic payments. This way, you can avoid missed payments and stay on top of your bills without having to think about it.
2. Keep your credit utilization ratio low
Aim to maintain a credit utilization ratio below 30% each month. You can do this by paying off your monthly balances in full and dividing your total balances by your total credit limit to see how much credit you're using. Since your credit utilization ratio is a big factor that determines your credit score, keeping it as low as possible can have a big positive impact on your score.
3. Don't apply for too many new credit cards or loans
Avoid applying for too many credit cards or loans at once, since this can cause multiple hard inquiries and lower your credit score. Limiting the amount of new accounts you open in a short time span can help your credit.
4. Dispute any errors in your credit report
Check your credit report for any errors or inaccuracies, since these can hurt your credit score. If you see any errors, you can dispute them with the credit reporting agencies to get them removed.
The bottom line
Having multiple credit cards can help or hurt your credit score, depending on how you use them. If you make timely payments and don't use too much of your available credit, you may be able to build credit over time. But if having more cards will lead to overspending and missed or late payments, you may want to stick with the credit card or cards you currently have. Remember that the right amount of credit cards is different for everyone, and can depend on your spending habits and financial situation.
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Original Source: Should You Have Multiple Credit Cards to Build Credit?
