Ever wondered if you have too many or too few credit cards? Credit card usage patterns vary quite significantly – while some consumers make do with just one credit card, others have wallets that are packed with 5 or more. But, is there a right number of credit cards to have?
The answer, in short, is that the number that will work best for you will depend on your spending power, budget, lifestyle needs, credit history, and tolerance for using credit cards.
Before we proceed, it’s important to emphasize that regardless of how many credit cards you have, it’s best to avoid carrying your balances from month to month. Not only will doing bring down your disposable income but it will also make it harder for you to repay your loan.
That said, let’s take a look at a few factors that you should consider when determining how many credit cards you should have and whether you really should be applying for another credit card.
Payment History
This is the single most important FICO score determinant and actually counts for 35% of your score. The longer you make your payments on time, the higher your credit score. If you are finding it hard to make payments on time, do yourself a favor and don’t apply for another credit card.
Credit Utilization Ratio
This is the ratio of your overall balance to your total available credit, or the credit limit, across all your active credit accounts. A higher credit utilization ratio essentially indicates greater credit risk, so it’s important to keep yours in check. Under 30% is good to have, though there’s no universally accepted benchmark.
Average Age of Your Credit Accounts
The longer you’ve had your credit accounts for, the more positively it will impact your credit score. That’s why closing an old credit account causes a drop in your credit score, even if it is temporary.
Frequency of New Credit Applications
Each time you submit a credit application, your credit score drops slightly. If you’ve been submitting a lot of credit applications, consider taking a break so your credit score does not drop too much.
