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How Many Credit Cards Should You Have

One of the most commonly googled questions surrounding credit is how many credit cards should I have or how many credit cards do I need for good credit. Unfortunately for those searching, and probably for you at this point, there is no jaw-dropping or one shocking answer to this question. At minimum the right answer is at least one credit card is recommended to obtain good credit, but let's take a look at why the number of credit cards you have won't be the magic bullet to increase your score. We'll also take a look at some steps you can take today to help increase your credit score, if that is your goal.

One of the biggest factors that goes into your credit score is payment history. Do you pay your bills on time? If you've paid your bills on time in the past, you are likely to continue to do so in the future. Keep in mind that not all bills are created equally. Paying your phone bill on time every month won't increase your credit score because phone companies don't report to the credit bureaus. But not paying your phone bill can land you in collections and those collection agencies will report to the credit bureau leaving a negative mark on your score for up-to 7 years. If you don't currently have any credit cards, having one will help you establish a payment history as long as you pay your bills on time. One card is sufficient to establish credit history and this will make up about 35% of your overall score.

The second biggest factor is the amount you owe on your credit balances. Credit scoring models like to see that you are using less than 30% of your available credit. Yes, you heard that right. Don't use credit when you have access to it to help your score. This makes sense when you think about it. The less you need to use your credit the better your financial health is likely to be. This is where having more than one card can work for you. If you have one card with a $1,000 balance and carry $500 on it month over month, you have a 50% utilization ratio which is bad. If you have 2 cards and both have $1,000 credit lines and carry the same $500 month to month, you have a credit utilization of 25%. This means the credit gods will love you.

The two items above make up 65% of your overall score. You can see how having at least one card will help you build a credit history. Having multiple cards may help with your utilization rate, but this can also be accomplished with only one card if your credit is managed appropriately month to month.

But, you are here for a reason. You want to increase your credit score. What steps can you take today to help with that?

1) If you have bad credit (Less than a 650) - Ask yourself how you got here. 

  • Are you in control of your spending? If not, let's work on your budgeting skills. Having a budget is key to making sure that you are spending within your means and able to meet your payment obligations.
  • Have you missed payments recently? If so, rebuilding your payment history is going to be necessary after you establish your budget. You'll want to look at a credit card for individuals with bad credit. These often carry annual fees and high interest, so you'll need to be certain your budget is ready to support a credit card. You can also look at getting a micro personal loan designed for credit rebuilding through a company like Self Lender to start rebuilding your payment history without risking taking on more debt.

2) If you have fair to good credit (650 -720) - Ask yourself what your goal is.

  • Are you trying to beef up your score for the long term future? If so, an extra credit card to increase your available credit might be the answer. 
  • Are your trying to get a more immediate result (6-12 months) to help you secure a great rate on a mortgage or auto loan? If you're currently carrying a balance month to month, you may just want to try to pay that down to help your utilization rate. You can also ask your existing credit card provider to up your line of credit to help with your utilization rate. We probably wouldn't recommend opening a new card at this point. You could also try to get a personal loan with a repayment period of 6-12 months. This will help diversify the types of credit you have access to, which is 10% of your overall score. Having a line of credit other than a credit card might give you the credit bump you need to get a lower interest rate.

3) If you have excellent credit (over 720) - Nice work! You're probably safe to apply for another credit card to help add to your available line of credit, help maximize your rewards, and help you build a lengthy history with your new credit card to help with your average age of accounts down the line.

At the end of the day your credit score is going to be determined by a machine that is analyzing a set number of data points to determine whether or not you are a worthy borrower. Luckily for you, you should be able to manipulate the factors being taken into consideration in order to outsmart the machine. You are the modern day John Connor. Skynet will not win.