Does Having Many Credit Cards Hurt Your Credit Score?

Credit cards offer convenience and security to consumers, especially those who don’t want to carry a lot of cash around. A typical consumer in the US is not usually satisfied with having just one credit card. In fact, a 2018 Experian report says that Americans tend to have an average of 3 credit cards.

In fact, I currently have 10+ active credit cards, Signing up for credit cards for rewards and churning them is my hobby. I like reward travel. I travel at a nominal cost. Even after applying and canceling cards frequently, I have an 800+ credit score.

How Does Your Credit Card Affect Your Credit Score?

In determining whether having several credit cards brings negative effects to your credit score, it’s essential to understand how credit score works first.

Below are the factors that help determine the status of your credit score:

Payment History

This plays a huge factor and covers 35% of your credit score.

Your credit card payments can be the most significant variable in your payment history.

On top of that, it has been known that credit card companies are quick to report late payments to credit bureaus.

Debt-to-Credit Ratio

This is also known as credit utilization. This ratio estimates how close you are getting to your credit limits.

Moreover, your credit utilization counts for 30% of your credit score.

Credit History

Having a good credit history with on-time payments helps boost your credit score over time and fast approval if you apply for installment loans online.

Credit history factors 15% of your credit score. This is where some consumers who have difficulty in handling many credit cards get into trouble.

New Credit

This counts as 10% of your credit score. Having a new credit can hurt your credit score in two ways. First, when the lender inquires about your credit history. Second, when the credit card account is officially opened.

Type of Credit

Type of credit factor 10% of your credit score. Credit bureaus usually look at how well you handle different types of credit.

Furthermore, it’s recommended to have different debt types as long as it is well-managed.

When is Having Many Credit Cards Too Many?

You may be looking at your stack of credit cards and start to wonder if you have too many. The answer if you have too many cards depends on a lot of factors.

Here are ways that may help you determine the matter:

High Debt-to-Income Ratio

One of the factors lenders look at before approving loans is the debt-to-income ratio. Lenders usually consider credit cards as an opportunity for another debt.

That is why there is a chance that they will calculate your debt-to-income ratio as if your credit cards were maxed out to determine possible debt risk.

Moreover, having several credit cards may mean you will have a high debt-to-income ratio that will make loan approval a little bit challenging.

High Credit Utilization

Credit utilization can be calculated by dividing the total debt over the total credit.

Suppose you have a credit card limit of $6,000, and your credit card balance totals $2,500.

This means that your credit utilization rate is 42%.

An ideal credit utilization rate should be less than 30%.

If you have many credit cards, you might get tempted to use all of them. It is vital to remember that, as your balance increases, so does your credit utilization.

No Experience With Other Types of Credit

As mentioned earlier, a mix of different types of credit can positively impact your credit score.

If you only have several credit cards and no experience with other types of debt, your credit score might be in trouble.

However, it is essential to note that this only covers 10% of your credit score status.

Difficulty in Handling Credit Cards

Due to owning a stack of credit cards under your name, you might have difficulty managing them.

You need to keep track of your credit card’s payment due date, fees, interest rates, and charges.

As the quantity of your credit card increases, the more challenging it is to handle it.

How to Deal With Too Many Cards?

If you have too many cards or have ones you no longer use, you might think of closing some of those accounts. It is vital to think twice before you do such a thing.

This is because closing credit card accounts can negatively impact your credit score.

Closing credit card accounts can shorten your credit history. It will also reduce your available credit, affecting your debt-to-credit ratio if you have existing balances.

Moreover, your payment history concerning your closed accounts will reflect on your credit report.

The best way to deal with having too many cards is to let them be open and put them on hold.

If you ever get a warning for inactivity, you may use the card slightly to prevent the account from closing.

You can also use your credit cards as a backup if you need extra funds in the future.

Takeaway

Having many credit cards can only hurt your credit score if you don’t know how to manage it correctly.

That is why it is wise to assess how well you can handle owning a credit card for you to decide how many of those cards are considered enough for your needs.

Moreover, doing so will protect your credit score from getting negative impacts.