How Many Credit Cards Can I Have And Still Have A Good Credit Score?

How Many Credit Cards Can I Have And Still Have A Good Credit Score?

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I had a lot of questions when I started collecting credit card points back toward the end of 2013, not the least of which was how this whole thing was going to affect my credit score. It’s a legitimate concern. Here I am telling you to sign up for credit card after credit card every three months. One could get a little concerned that this would have a negative effect on the finances. So you may be asking yourself, How many credit cards can I have and still have a good credit score? The answer is as many as you damn well please, as long as you use them responsibly.  Allow me to explain.

Credit Score Basics

There are three rating agencies called credit bureaus: Equifax, Experian, and TransUnion. These bureaus gather data from banks, mortgage companies, credit card companies, and other credit lenders. The Fair Isaac Corporation (FICO) has created an algorithm that probably no one but God himself understands that is used to calculate a FICO credit score. The FICO score varies between the three credit bureaus, and this is because each of them operates independently of each other, and not all lenders report to all agencies. Generally speaking though, your FICO score should be similar between the three bureaus.

Even though we don’t know the exact calculations used to come up with the FICO score, we do know what factors impact it. Not only do we know the factors, but how heavily each affects your score. So without further ado, here they are.Credit Score

  • Credit card use – High impact
  • Payment history – High impact
  • Derogatory marks – High impact
  • Credit age – Medium impact
  • Total accounts – Low impact
  • Hard inquires – Low impact

Credit Card Use – High Impact

Credit card use is calculated by taking your average monthly balance as a percentage of your total credit limit. For example, if you have 5 credit cards each with a $20,000 credit limit, then your total credit limit is $100,000. If you typically carry a balance of $5,000 between all 5 cards, then your credit card use is 5% ($5,000 divided by $100,000).

The lower your use, the better. If you think about this, it intuitively makes sense. The more credit you are using, the further you are pushing your limits, and that means you are riskier to lenders. Showing that you have credit available to you, but that you don’t have to use it shows that you’re a safer bet.

Payment History – High Impact

This one is pretty straight forward. It’s just looking at if you’re making your monthly payments on time. Paying your bill on time every month is a good way of showing lenders that you are responsible with your debt, and thus are less of a risk to them. Even one late payment can ding you here, so be sure to keep track of those due dates.

Derogatory Marks – High Impact

You don’t want derogatory marks. Just the name alone should scare you away.  A derogatory mark could be a bankruptcy, foreclosure, collection, tax lien, or a civil judgement. None of these help your case with lenders. If you have any of these, not all is lost. Most will come off within seven to ten years, and the further they are in the past with all other factors looking better in the recent past, the less some lenders may worry about them.

Credit Age – Medium Impact

Credit age is the average time your accounts are open. This looks at each open credit card, auto loan, student loan, mortgage, and any other open credit arrangement and takes an average of the time each has been open. The higher the average, the better. This shows you have more experience with credit.

Having a long-standing mortgage goes a long way to positively affecting this factor. Keep in mind that every time you refinance your house, you are closing an account and opening a new one. So think back to the last time you refinanced, not when you actually purchased your home, to calculate this average.

When using credit cards for the sole purpose of getting the sign-up bonuses, it can be tempting to cancel the card right away. I always recommend keeping the card as long as you can. If there is no annual fee on a card, there really is no reason to cancel it. Even if a card does have an annual fee, sometimes it still makes sense to keep it.

I’ve found that of all the cards I’ve done in the past 3 years, I’ve found about 3 or 4 cards that are worth paying the annual fee and keeping. With all of that, I’ve been able to keep this factor pretty strong.

Total Accounts Age – Low Impact

Believe it or not, the more accounts you have the better. This kind of ties in to the first factor, as having more accounts increases your credit limit. Keep in mind, this only works in a positive manner for the first factor if you don’t max out your accounts. In addition to that, payment history comes in to play here as well. Having multiple cards won’t help your score if you mismanage them and miss due dates.

Lenders like to see that you have experience with various types of accounts. So having a few credit cards, a mortgage, an auto loan, and maybe a student loan all help to show that you have been able to manage several different kinds of financial loans.

Hard Inquiries – Low Impact

Hard inquiries occur when you apply for a new loan or credit card. Having multiple hard inquiries shows that you are acquiring more debt, which could look bad to lenders.

You may be wondering if this should prevent you from applying for multiple credit cards to get sign-up bonuses.The good news is that hard inquiries have a pretty short lived negative impact on your credit score. Their affects fade over time. In addition, this is one of the lowest impact factors.

What Does This All Mean?

In a nutshell, what all this means is that as long as you don’t max out your cards, pay the bills on time, and don’t cancel your accounts too soon, that you’re basically golden to do whatever you want. I am going to hedge here a bit and say that since credit scores are not an exact science, I am not going to guarantee your credit won’t take a hit for participating in this hobby. But I can say that my credit has done nothing but improve since I’ve started, and I know others have had similar results.

Credit Karma

It’s not always easy to get access to your FICO score. However, there are a lot of ways online to get a good idea what it is. Credit Karma is a website I have used to keep tabs on my credit score since I started doing this. Credit Karma uses both TransUnion and Equifax and calculates a credit score using VantageScore 3.0. While this is not going to be exactly the same as your FICO score, a good score on Credit Karma is a good sign that your FICO score is solid.

Credit Karma shows how my score based on TransUnion has trended for the last nine months. As you can see, it was around 805 back in September of 2016. It has increased and is currently at 815. I wish that I was able to show you the trend back to 2013, because my credit score has only continued to increase throughout my credit card point journey.

Credit Score Bottom Line

While I will stop short of guaranteeing your credit will only get better throughout this hobby, I will say that my score has continued to improve. This experience has been shared by others. Keep in mind though, that you have to be responsible with your debt; don’t max out your credit, pay your bills on time, and don’t cancel cards too early. By following these principles, you should be able to continue to open cards and get their sign-up bonus points. Your score may ebb and flow as you get hard inquiries, but just remember that those hard inquiries don’t have very lasting effects.

Please share your thoughts in the comments. I’d be curious to see if anyone has different experiences.


8 Replies to “How Many Credit Cards Can I Have And Still Have A Good Credit Score?”

  1. Thank you for the thorough guide to what has an impact on credit scores. Like yourself I have several credit card associated with travel and they make a difference in lowering my travel costs. I p do pay them on time and in most cases in full every month and because of the rewards I almost always stay in my hotels for free, and often fly for free. I agree managing your credit is very important, and using rewards credit cards makes travelling significantly less expensive.

    1. Thanks for you comment Robert.  Good on you for keeping up with your credit.

      One of the biggest fears people have before they try to get a lot of bonus points through credit card sign ups is that they are going to kill their credit. It’s pretty ironic because if you do it responsibly, this is actually one of the ways to boost your credit.

  2. I found this article on what your credit score is based on rather interesting. I never thought about using credit cards for points and thus reducing expenses like travelling and eating out. This is a great idea but I think many people see credit cards as free money and tend to abuse them. You hear of so many horror stories.

    I am glad that you have emphasized the importance of paying your bill on time and not running up your debt. By following that you can actually enjoy the benefits that some credit cards offer.

    1. Thanks Maureen.

      Unfortunately the allure of spending more money than you have is to much to resist for some people, and I would never encourage those people to use points  if you can handle it responsibly, they can be an awesome resource.

  3. Great article on credit cards, and I will be sure to show this to my college-aged son who is just starting out with a credit card. Dealing with the 3 credit bureaus is very complicated, but you have done a great job explaining the process.
    I think what resonated for me the most was your explanation of what happens when you have multiple credit cards, and how the credit bureaus look at the percentage of debt against the credit limits. I want to make sure my son learns this very early on in life! Thanks for such great info!

    1. Thanks for the comment Amy. I hope your son has a good experience, and is able to get some good travel rewards while building a healthy credit history. 

  4. I discovered this article on what your FICO rating depends on rather fascinating. I never pondered utilizing Mastercards for focuses and consequently diminishing costs like voyaging and eating out. This is an awesome thought however I think many individuals see charge cards as free cash and tend to manhandle them. You know about such a large number of loathsomeness stories.

    I am happy that you have stressed the significance of paying your bill on time and not running up your obligation. By taking after that you can really appreciate the advantages that some charge cards offer.

    1. Exactly. Just mentally tie that card with the amount of cash you have in your bank. If you can do that, it opens up a wonderful world of possibilities. 

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