How many cards are too many?
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How many cards are too many?

The credit card-credit score connection

If the daily mail stream was a reliable indicator of how many credit cards, you should have the answer would be dozens. But the better—and safer—number is likely somewhere closer to five to ten. Still sound like a lot? Then you may not be familiar with the role credit cards play in calculating your credit score.

As it turns out, credit cards are a huge factor in establishing your credit rating, which in turn plays into how likely you are to get a mortgage, a car or personal loan, be approved for a cell phone, rental property, and even qualify for insurance.   

Too few cards, say, less than five, leads to what’s called a “thin file” in the credit biz. A thin file doesn’t provide creditors with complete picture of your creditworthiness. Without a meaningful credit history on which to judge your ability and willingness to make repayments, it’s likely you won’t get approved, or you may get approved but get hit with a higher interest rate.

While you might think the easy solution to a thin file is to load up on credit cards before a taking out a loan or applying for a mortgage, creditors are wise to that ploy. In fact, applying for multiple credit cards in a short period of time is often interpreted as a sign of credit risk. A better approach is to do some long-range financial planning and space credit applications about six months apart. But it’s important to note that each time you apply for credit and your credit gets checked, your record gets docked a few points—usually no more than five—for what’s considered a ‘hard inquiry’ or a ‘hard pull.’ While you usually get those points back in less than a year, a hard inquiry notation will stay on your file for about two years and is visible to creditors looking to approve you for a card or loan.

FYI, checking your own credit will not harm your credit. Self-checks and checks by creditors looking to review your credit report to determine how well you are managing your money are referred to as ‘soft inquiries’ or ‘soft pulls’ and have no impact on your credit score. Like hard inquiries, soft inquiries remain on your record for up to two years but they’re only visible to you.  

Even if you do stagger the opening of credit card accounts to avoid red flags, there are a few things to understand about how multiple cards can impact your credit.

First, more important than the number of cards you have is your ability to pay them on time. In fact, 35% of your credit score is determined by your payment history. Your credit score will reflect whether you make payments on time, how often you miss payments, how recently payments have been missed, and how many days past the due date you pay your bills. 

The second big factor (30%) impacting your credit score is how much you owe on loans and credit cards. Focusing on credit cards, creditors are looking specifically at the number of cards you have and how much you owe versus how much credit you have. Not surprisingly, high balances don’t work in your favor.

The length of your credit history is another factor that gets rolled into determining your credit score and -worthiness. A longstanding record of making payments on time will work to boost your credit score. As a rule of thumb, seven years is considered a good amount of time to have an open account positively impact your score (assuming you pay on time). Accounts open less than six months will not be calculated into your score.

Even if your someone who does like to use credit cards, having one (or five) can have a bit impact on your ability to live your life according to your own plan. 


DISCLAIMER: This article is meant for educational purposes only and is not intended to be construed as financial, tax, investment or legal advice. 

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