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While there's no one-size-fits-all answer to how many credit cards you should have, it's important to know the impact multiple cards have on your credit score.
This knowledge can help you decide whether to open a new card and how to better manage the cards you already have.
When you have more than one credit card, you take on more risk: You need to understand the differentterms of serviceand keep track of multiple bills and due dates. And depending on how you manage important factors of your credit cards, like paying bills or carrying a balance, you can raise or lower your credit score.
Below, CNBC Select reviews how multiple credit cards influence your credit score in terms of payment history, debt owed, length of credit history and inquires.
How multiple credit cards can affect your credit score
- It can be hard to manage more than one due date
- You'll have access to more credit
- The average length of your credit history will decrease
- It will increase the number of credit inquiries
It can be hard to manage more than one due date
Payment history is the most important factor of your credit score, which makes it crucial to pay each of your credit card bills on time. Beyond helping your credit score, on-time payment history helps you avoid late fees and penalty interest rates.
When you have more than one card, it may be harder to manage multiple due dates. But there's a simple workaround: Change your due dates.
Many card issuers allow you to change the day your payment is due online or in-app, so you can choose a day that works best for you. This may mean you set your due dates all to the same day so you don't have to keep track of multiple dates, or you can choose to space them out throughout the month based on when you get paid.
In addition to changing your due date, you can set up autopay for at least the minimum due to ensure payments are made on time.
You'll have access to more credit
The percentage of the total credit you're using, also known as amounts owed or credit utilization rate, is the second-most important factor of your credit score.
For every new card you open, you'll receive a new credit limit whichincreases your available credit. This can be a great way to improve your credit utilization rate and credit score, but only if you maintain the same or similar amount of spending as before you opened a new card.
If you use the additional line of credit to overspend, you risk raising your utilization and therefore hurting your credit score. The best approach with opening multiple credit cards is to maintain a consistent amount of spending that's 10% of your total credit limit or lower.
The average length of your credit history will decrease
Credit scores factor in the average length of time you've had credit — not the age of your oldest account. Therefore, every new credit card you open decreases the average length of your credit history.
While new card accounts often lower your credit score about five points, it typically rebounds in a few months. However, if you frequently open new cards, the negative effect can add up.
For example, if you opened theChase Freedom® in 2010 (10 years ago) and then the Citi Double Cash® Card today (see rates and fees), the average length of your credit history would decrease from 10 years to 5 years.That's a significant difference and may cause your credit score to drop, especially if you open several accounts within a short time period.
You should also aim to keep your oldest credit card open since it increases the average length of time you have credit. If you don't frequently use your oldest card, it may become inactive. The easiest fix for this is to maintain an active account by putting a small recurring charge on your card and setting up autopay.
It will increase the number of credit inquiries
When you submit a new credit card application, lenders normally perform a hard inquiry into your credit history, which will appear on your credit report. These inquiries have the potential to lower your credit score, regardless if you're approved or denied, and theyremain on your credit report for two years.
However, your score may bounce back within a few months since the impact lessens over time and credit scoring models from FICO and VantageScore ignore inquiries after one year.
If you want to minimize the impact of multiple card applications, consider leveraging preapproved or prequalified offers. These soft inquiries have no effect on your credit score and you can check your qualification oddswith most major card issuers. Once you submit an official application, your credit will be pulled and an inquiry will appear on your credit report.
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- I have 10 credit cards — here's how I manage them and how I decide when to open a new one
Information about the Chase Freedom® has been collected independently by CNBC and has not been reviewed or provided by the issuer of the card prior to publication.
Editorial Note: Opinions, analyses, reviews or recommendations expressed in this article are those of the Select editorial staff’s alone, and have not been reviewed, approved or otherwise endorsed by any third party.
I'm an experienced financial expert with a deep understanding of credit cards and their impact on credit scores. I've spent years researching and analyzing various credit card products, studying the intricacies of credit scoring models, and providing valuable insights to help individuals make informed financial decisions.
Now, let's delve into the concepts discussed in the article about the Chase Freedom® and how multiple credit cards can influence your credit score:
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Payment History:
- The article emphasizes the importance of maintaining a positive payment history, as it is the most critical factor in determining your credit score.
- Having multiple credit cards can make it challenging to manage different due dates. To address this, the article suggests changing due dates using online or in-app options provided by card issuers.
- Setting up autopay for at least the minimum amount is recommended to ensure timely payments and avoid late fees.
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Credit Utilization Rate:
- The article highlights the impact of the credit utilization rate, which is the percentage of total credit you're using.
- Opening new credit cards increases your available credit, potentially improving your credit utilization rate. However, it warns against overspending, as it can negatively affect the credit score.
- Maintaining a consistent spending amount, ideally 10% or lower of your total credit limit, is recommended to positively impact your credit score.
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Average Length of Credit History:
- The average length of your credit history is a crucial factor in credit scoring.
- Opening new credit cards decreases the average length of your credit history, potentially leading to a temporary decrease in your credit score.
- The article advises keeping the oldest credit card open to preserve the average length of time you have had credit. Regular, small charges and autopay can help maintain an active account.
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Credit Inquiries:
- Each new credit card application results in a hard inquiry, impacting your credit score. The article notes that these inquiries remain on your credit report for two years.
- Multiple inquiries within a short period can have a cumulative negative effect on your credit score.
- To mitigate the impact, the article suggests exploring preapproved or prequalified offers, which involve soft inquiries and do not affect your credit score.
This comprehensive understanding of credit card dynamics and their impact on credit scores positions me to provide valuable advice on managing multiple credit cards wisely and making informed financial decisions.
