How Many Credit Cards Should I Have For Good Credit

In America, your credit score is your lifeline for nearly everything.  You need a good credit score to get a car, buy a house and get affordable insurance.  So if you’re one that has several credit cards, you may be wondering how many credit cards should I have for good credit.  Having too few or too many credit cards can definitely help or hurt your credit score.  Let’s take a look at how many credit cards you should have in order to optimize your credit score.

How Many Credit Cards Should You Have?

It is a common myth that you should only have one credit card.  Many  people think that the best way to have a good credit score is to have a single credit card, pay the card on a regular basis and not carry a balance.  This is true.  However, If you want to improve your credit score and use that to get a auto loan or mortgage, one thing lenders look at is your debt to available credit balance – or your debt utilization.  Thus, having a few credit cards that have no balances makes that ratio bigger and makes it look like you can handle your credit – weird, we know!

This will tell future lenders that you can manage payments and you can manage debt without getting into trouble.  Consistent payment histories on credit cards and student loans drastically improve your credit and will build your good credit history.

What Is Debt Utilization or Debt Ratio?

A financial ratio that measures the extent of a company’s or consumer’s leverage. The debt ratio is defined as the ratio of total debt to total assets, expressed in percentage, and can be interpreted as the proportion of a company’s assets that are financed by debt.

What is a good debt utilization ratio?

Your debt utilization can affect up to 30% of your credit score.  Using less of your credit gives you a lower debt utilization score and will affect your overall credit score positively.  An optimal debt utilization ratio would be 0%, however, if you have a credit card, it is highly unlikely that your credit report will show a 0% utilization score.  Thus, most credit card companies and creditors will look for a debt utilization ratio of under 30% as a positive score.  To lower your debt utilization ratio you can either pay down your credit card or ask for a credit limit increase.

Is closing a credit card bad?

Most consumers will at some stage in their life will use a credit card and the average American will carry up to five credit cards in their wallet!  Having a number of cards means eventually you will close a card and open a new one.  The main question is what is the best way about closing a credit card without hurting your credit score?

It is best to close your card when the balance is at zero.  Closing a card with a balance may indicate your are in financial difficulty.  It is also best to actually call the company to close the card and send them a letter.  You want to indicate that you want to close the card “by consumer” and  you want that indicated in your credit report. You’ll want to verify that the fact that the account is noted as “closed by consumer”.

If you have more than five credit cards open and have more than 50% combined utilization, you should probably consider closing a card or two – if you have a store card, consider closing those cards first.  However, keep your cards with the highest limits open and close those with the lowest limits.

Canceling cards with high limits should be closed last.  Furthermore, it is better to limit your cards to no more than five at all times.  No matter how good your credit score is, banks will view you as higher risk if you have more than 5 cards open at a single time.

Should you keep a balance on your credit card?

It is a common myth that always paying your credit card down to zero will positively impact your credit score.  However, in terms of a credit score, it is actually beneficial to carry a small balance on your card.  If possible, pay your card down so that at the end of the month, you are carrying a balance of 1% of your credit limit.

If you have a $1000 credit limit, keep your balance at $10.  What this does is establish a payment history on a credit balance – the ability to consistently pay over time.  However, any balance on your card over 25% could negatively impact your credit score.

How to improve credit score in 30 days

While you may not be able to drastically improve your credit score in 30 days, you can definitely do a few things in a 30-day span that will ultimately improve your credit score.

Ask For A Higher Credit Limit

Call your credit card company and ask them for a higher credit card limit.  This will lower your debt to credit ratio and can have a positive impact on your credit score.  It only takes a phone call and can be beneficial.

Ask For an Adjustment

If you normally pay your card on time and accidentally miss a payment, send a letter to the company or call them and ask them if they can remove that from your record.  If you have a history of on-time payments and explain why the one payment was late, they may just remove that mark from your record.

Pay Down Your Debt Faster

Buckle down and attempt to put an extra $50/mo toward your credit card payment.  Work to get your balance to a point where it is down to 30% of your available credit limit.

Eliminate Credit Report Errors

Request a copy of your credit report and thoroughly comb through it.  Look for any errors and get them corrected.  Small glitches on your credit report can end up affecting your negatively in big ways.