Q: Is there such a thing as having too many or too few credit cards? What’s the magic number?
It’s a tricky balance. While going on a crazy, account-opening binge is sure to hurt you, not having enough credit cards could, too.
For example, I once had clients who were applying for a mortgage. They earned good incomes and had more than enough savings for a down payment, but almost didn’t qualify because they only had one credit card each and no other debt.
Most major lenders—especially mortgage lenders—want to see at least three lines of credit on your credit report, which can also include student loans, a personal loan or an auto loan. If you don’t have any of those, my advice is to work up to three credit cards.
Applying for another card can also lower your utilization ratio, which is one of the biggest factors in your credit score. Generally, this ratio should be 30 percent or less (i.e., if your limit is $1,000, your balance should be kept at or below $300—though ideally you’re paying it off every month). Otherwise, you’re signaling to lenders that you may be living off your cards and are flagged as a risk.
Remember, though, that applying for new cards results in a “hard inquiry” on your credit report—even if you don’t get approved. So applying for several at once can negatively affect your rating. One other downside: More credit means more temptation to spend. This is where having a clear picture of your spending and discipline to stay on budget (and pay off the balance) becomes important.
In the end, maintaining multiple accounts only makes sense if you’re taking care of your credit at the same time. Otherwise, make a plan to pay down any debt and develop good habits using the cards that are already in your wallet.
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February 16, 2017