How Many Credit Cards are Too Many? What it Means To Your Credit Score

Written by: Alan Edwards

Most folks know that there are credit agencies also known as credit bureaus that compile information that makes up your credit report. The three major bureaus are:

  • Equifax
  • Transunion
  • Experian

While these companies monitor your credit – how many accounts you have, whether you are current on them, if you ever had a judgment or bankruptcy and other information, they also compute your credit score, also known as your FICO score, based on the information they have about you. In fact, while the basics of what FICO uses to compute your credit score is only common wisdom – a guess, exactly how the information is used is a trade secret. The question about the number of credit cards and the effect on your credit score is unanswerable with certainty, only with assumptions. For more information on how your credit or FICO score is computed click here.

Experts believe that as much as thirty-five percent of your credit score is comprised of your debt to available credit ratio. If you have credit cards with a total credit line of $15 thousand and you maxed out, it will have a negative effect on your credit score. However, if you have available credit of $30 thousand but only have $15,000 of credit card debt then this has a positive effect on your credit score.

However, if you have $15 thousand in credit card debt and that is your limit so you quickly open three new accounts, each with a $5 thousand limit to improve your ratio, you suffer due to the newness of the accounts that you opened so close together – however, after a few months, your score will rise again.

This chart is from FICO, as you can see, number of credit cards does seem to be a factor in calculating credit scores.

It appears that the age of the account is also a factor. The older a credit card account is the better FICO likes it. Nevertheless, many people like to change credit cards where they carry a balance to cards that offer 0% introductory rates. These folks often change accounts, opening new accounts and closing old ones when they begin to charge interest and fees. Anecdotal evidence suggests that if they follow a timeline that is reasonable, opening and closing accounts a few accounts every six months or so there is no effect on their credit score.

It appears that whether you carry five, 10 or 20 cards makes little difference to your FICO score. What does matter is how long you have had the credit, your payment record and your debt ratio. Debt to credit ratios of 50 percent or less seem to improve your score, higher ratios tend to lower your score.

Anyone who claims they know the exact effect anything has on your FICO score is being untruthful. Financial experts at best, make educated guesses.


How Many Credit Cards are Too Many? What it...

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