Does having multiple credit cards help my credit score?

It’s complicated

The importance of maintaining a good credit score is old news. As you likely know, the higher your score, the more attractive you will be to potential lenders, making larger loans and the best interest rates more accessible.

Hopefully, you're working hard at keeping that score high by using your cards and paying your bills on time. You may be wondering, though, if one card is good, are more better? Should you open a few more and get more available credit, or are too many cards a liability to your score?

How your credit score works

Before we answer the number of cards question, let's explore the way FICO and other credit scoring agencies calculate that all-important credit score.

Here are the major components of your credit score:

  1. Your payment history. The timeliness - or lack thereof - of your payments comprises 65 percent of your FICO score, making it the most important factor.
  2. Your credit utilization. Credit scoring companies look at how much of your available credit you are using.
  3. The age of your credit. This is how long you've had your credit cards open. Lenders want to see a long and active history of credit cards and on-time payments.
  4. The kind of credit you have. A variety of credit indicates that you are an attractive borrower.

Argument 1: You only need one card to build credit

If you want to be strictly technical about it, you only need one card to build a solid credit score. Use it consistently and pay it off on time, every time. Doing so will contribute a lot of positive data to your credit history, and – over time – your credit score will climb.

Argument 2: If one card is good, more are better

Your credit utilization score comprises 30 percent of your credit score. It is calculated by dividing the balances (the amount you owe) on your card(s) by your credit limit(s). The higher your balances, the less attractive this looks.

Multi-card proponents argue that having more than one card increases your overall credit limit, thus improving your credit utilization score. This is true, but comes with these caveats:

  1. The length of your credit history is 15 percent of your score. When you get a new card you lower the average age of your credit. This is more important if you have a relatively short credit history already.
  2. Applying for a new credit card will initiate a hard inquiry to your credit report. This will lower your score slightly. If you open several new cards at once, it can have a greater impact on your score.
  3. The kind of credit you carry is 10 percent of your score. Adding another credit card doesn’t help this. If you already have a credit card and you need to borrow money for a project or large purchase, consider a signature loan or some other type of closed-term loan rather than another credit card.

The takeaway

When thinking about applying for a new card, ask yourself: Why am I getting this card. These are some good reasons to get a new credit card.

To escape high interest and fees. If the card you’re using has a high interest rate and charges a lot of fees, it can be worthwhile to move your balances to a card with better rates and fewer fees, like the Visa Value card from Oregon State Credit Union. But watch out for transfer fees! Find a card that won’t charge you to transfer your balances.

To raise your credit limit and improve your credit utilization score. Before you open a new card to raise your credit limit, try raising the limit on your existing cards. If that’s not possible, this may be an option. But only open one card at a time.

There are also reasons why you should not open a new card.

If you can’t keep up with your current card payments. If you struggle month after month just to pay the minimum due on your current credit card, now is not the time to get another one.

You’ve applied for one or more loans recently. Multiple hard inquiries on your credit are a red flag to creditors. If you’ve recently applied for other loans, like an auto loan or a home loan, hold off on applying for a credit card. Let your credit score take a breather.

You are planning a major purchase. If you’re planning to apply for a home or auto loan soon, you want your credit score to be at its best. If possible, apply for the additional credit card months before you apply for the larger loan or wait until afterwards.

The final word

If you're just starting to build your credit and don't plan on applying for a huge loan soon, it might be a good idea to open a new card. Pay it on time and try not to go above 30 percent of your available limit. But, if you plan on applying for a large loan in the near future, give that card acquisition a rest and focus on using the cards you have responsibly.

Whichever category you fall into, remember to use your cards and pay those bills on time! Keeping your credit score strong can have positive effects on your finances for years to come.

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