How Having Multiple Credit Cards Can Help Your Credit.. or Ruin It
The cashiers at the store offer them, your mailbox is always full of them, and even your bank seems to be constantly promoting them. Credit card offers bombard us at every turn, and a lot of them have some pretty enticing rewards and promotions that may have you wondering, “what would happen to my credit if I did apply for these? How many credit cards is too many?”
The answer may surprise you, because the quantity of credit cards does not affect your credit as much as how you manage them. You can do more damage with one single credit card than with a dozen cards if you don’t use it responsibly . Here’s why.
Your credit score is calculated based on a few different factors, and some are more important than others. These include:
- Payment history: 35%
- Amounts owed: 30%
- Length of credit history: 15%
- Credit mix: 10%
- New credit: 10%
And here’s how having several credit cards can impact each factor contributing to your credit score.
Your credit score is meant to tell lenders how financially responsible you are, so it makes sense that the largest factor is your payment history. If you have always made your payments on time, you will likely have a decent credit score, since more than one-third of your score depends on this. However, when you add several credit cards to the mix, it can be easy to lose track of payments, annual fees due for each one, and other balances you owe. Simply stated, the more payments you owe, the more likely you are to miss one, and this will hurt your credit the most.
Credit utilization (Debt to credit ratio)
Your credit utilization, or debt-to-income ratio, is simply how much credit you use out of your available credit. If it is high, lenders may think you rely too much on credit or live outside of your means. However if you keep this number low, it is a good sign that you are financially responsible and don’t let debt consume you.
Having several credit cards can actually help this area, because more credit cards means more available credit, which could decrease your ratio if you don’t use very much of your available credit. But then again, credit cards are easy and convenient to use, so it could be easy to increase this ratio by reaching for your cards more often than not.
This category looks at the average age of your accounts, not just your oldest account. The purpose of this category is to show lenders a consistent history of financial responsibility, and opening several cards in a short period of time can be a red flag that you’re strapped for cash or impulsive. Try to space out your applications by a few months at least, longer if possible, to keep this average high.
There are two basic forms of credit: revolving credit and installment. Revolving credit includes credit cards, lines of credit, and other forms of credit that fluctuate. Installment credit refers to something attached to an asset, such as a mortgage or car loan. Your credit mix, or the various types of credit you use, contributes toward your overall credit score. Having too many credit cards can affect this, but not by much, especially if you’re responsible about your spending and have other types of credit as well.
Credit applications come with a hard inquiry on your credit, which is basically just a note that you applied for more credit. This hard inquiry can ding your score a few points but only temporarily. However, you should avoid applying for several credit cards at once, or in the same time frame that you plan to apply for a car loan or mortgage, to ensure your score is the best possible for your application. Similarly, applying for a lot of credit in a short amount of time looks bad, like you’re strapped and desperate for cash, and can be seen by lenders when you apply for a loan.
The bottom line is that you can still attain and maintain a high credit score while having several credit cards, as long as you make your payments on time, keep a low credit utilization ratio, and space out the applications.
6 secrets to managing multiple credit cards
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For Louis DeNicola, it started in college with a student Visa credit card. That was followed by two store cards.
Then came the realization that credit card rewards points could hold the key to free travel. One free flight to Europe and a couple free hotel stays later, the New York City resident was hooked. Today, DeNicola has nearly a dozen cards and is known as the "credit card guy" in his circle of friends.
Half of the U.S. population has at least two credit cards , according to a report by credit bureau Experian.
Eric Coombs, like DeNicola, started with a student card but soon received other offers. Coombs eventually found himself carrying eight cards, for personal accounts as well as business cards for his company, ENC Valet in Sacramento, Calif.
"From a business standpoint, it is nice to have all business expenses on one card," he says.
Despite their different paths to owning multiple credit cards, both DeNicola and Coombs have developed strategies to keep their cards -- and credit -- in good shape.
First, neither DeNicola nor Coombs carry a balance on any of their credit cards. As DeNicola notes, rewards cards generally have higher interest rates. Remember that any interest you pay will offset and may even negate the value of rewards you earn with a card.
Along with paying off the balance each month, you need to be sure you are making your monthly payments before the due date. An automatic, online bill-pay system can be ideal for this purpose, says DeNicola.
Should you miss a payment, DeNicola suggests calling the card issuer right away and asking for the fee to be waived. If it is your first late payment or a new card, the company is often happy to oblige.
Both men avoid paying annual fees for their cards.
"I don't have any credit cards that cost money," says Coombs.
DeNicola does have cards with annual fees but he places a sticker on the front of each card with the amount of the annual fee and when it is charged. That sticker serves as a reminder to call the card issuer a month before the fee is due and ask to have the fee waived. If the company declines, he downgrades his card to one without a fee.
4. Pick the right card for each purchase
Perhaps the most challenging part of having multiple credit cards is maximizing rewards points. When DeNicola first got his cards, he placed stickers on the front with a reminder of each card's rewards.
Mobile apps such as Reward Summit, Glyph and Wallaby offer a more high-tech way to achieve the same goal, enabling you to keep track of which of your cards offers the best rewards for each purchase.
It's also important to pay attention to each card's features, which might include fraud protection, extended warranties or travel insurance. These features can come in handy when making major purchases.
Speaking of purchases, knowing where you spend your money is essential to paying off your balance each month.
"When you stop paying attention, (spending) can get out of control quickly," says Mary Ann Marriott, a financial counselor for Haley & Associates in Nova Scotia.
Coombs keeps an eye on each card's paper statement while DeNicola uses Quicken to monitor his card usage.
DeNicola also notes that many sign-on bonus offers for rewards credit cards have purchase requirements. Careful tracking is important to ensure you have made the correct number of transactions or spent the proper amount to gain the bonus.
6. Consider the impact to your credit score
Finally, don't overlook the effect of multiple credit cards on your credit score. Your FICO credit score is based on the following categories:
- Payment history: 35 percent
- Amount owed: 30 percent
- Length of credit history: 15 percent
- New credit: 10 percent
- Types of credit: 10 percent
Length of credit history is one reason why Coombs hasn't closed any accounts despite the fact he tends to only use half his cards on a regular basis. In addition, with his credit score only one point off perfect, he is reluctant to apply for new cards since credit checks tend to cause a temporary decline in scores.
To minimize that decline when opening new accounts, DeNicola uses an "app-o-rama" strategy that and involves applying for multiple cards at once.
Using multiple credit cards can be an effective way to rack up rewards points and earn free travel, cash back and other perks. However, it may not be a sound money strategy for everyone.
"The biggest con is definitely temptation," says Marriott. "We get the cards with the best of intentions and then life happens."
And life happening may mean excessive spending and missed payments which can lead to interest and fees you didn't plan on paying. Certainly, juggling multiple credit cards is not for the disorganized or for those easily convinced they need that shiny new something.
"Self-discipline and available credit go hand in hand," says Marriott.
How Many Credit Cards Do You Need?
You’ve seen it before: An egomaniac at the checkout rolling out a bevy of bank or department store credit cards. Sure it looks impressive, but having so many cards can mean having an obscene amount of debt and limit your chances for a loan. Having all those cards open and carrying a balance could diminish your chances of getting money when you need it most. If you carry a lot of debt, you might be denied for a bank loan even if you have a consolidated credit limit of $100,000. How many credit cards you need will vary from person to person, but the total should be at most only a handful.
Make no mistake: It is best to keep a minimum number of credit cards, but having too many credit cards can be just as detrimental to your credit as having none at all. And, keeping balances on too many credit cards is a logistical nightmare. How likely is it to miss a payment? Miss one and creditors are hounding you to pay up. And the grace period for payment has been reduced to as few as ten days. Paying multiple credit card bills within 10 days of the due date can be daunting, and if you fail, you are penalized with late fees, farther compounding the debt.
It’s common sense: Trying to keep up with the payments on two large balances is far simpler than trying to keep track of several smaller balances. And isn’t it easier to track your spending on fewer cards? The more credit cards you carry, the more you can spend; the more you have to spend, the more debt you can incur and the less likely you are to be approved for a new loan or mortgage.
Remember, too, that each credit card carries different interest and penalties. Miss a payment on a credit card with a high balance and high interest rate, and you’ve wiped out your savings. High-interest credit cards limit your ability to build wealth; you are spending your money reducing debt that could take a lifetime to repay.
Keep yourself in check; resist opening several credit cards and being swallowed with debt. And for the cards you must carry, be smart and carry cards with lower interest rates.
Credit card companies want you to think that you need the status of multiple cards. Remember: They want money, your money.
Minimize the cards and debt you carry, and you can repay your debt on time. You will keep your financial house in order and your mind at peace.
How A Credit Inquiry Affects Your Credit Score
One of the most common questions that readers want to knowВ is how a credit inquiry affects your credit score.
A juicy bonus points offer might tempt you to apply for a new credit card, but what should you do with your old one? Then there are travel hackers who open and close multiple credit card accounts within a short period of time in order to maximize their rewards points and minimize fees. Will that have a negative effect on your credit rating?
To answer these burning questions, I reached out to Paul Le Fevre, Director of Operations at Equifax Canada, one of the major credit reporting agencies in the country.
1. What happens to my credit score when I apply forВ a new account?
Equifax response:В Scoring products include inquiries as a component of the score. Approximately 7-10% of a score is based on the entire inquiry section, typically looking at ALL inquiries present within either a 1-3 year period, depending on the scoring product and product version.
The score also considers the inquiry type (mortgage/car loan, retail card inquiry etc). Mortgage and auto loan inquiries are each considered collectively to count as a single inquiry over a specific period of time so a consumer is not heavily impacted by shopping around for the best mortgage deal or auto loan.
2. What about when you apply for multiple credit cards within a short time frame?
Equifax response:В The biggest misconception in the marketplace is that a single inquiry has a significant impact on a score: that is simply not true. In fact, 90-93% of a score is derived from how a consumer has managed credit over time and is currently managing their existing credit product portfolio.
If a consumer applies for multiple products in a short period of time, the impact may be slightly higher. However, I stress that payment patterns (when a consumer pays their bills) and outstanding balances (% utilization of the credit limit) weigh much more heavily on the score than inquiries.
3. Is it better for your credit score to keep your old credit card account open and inactive, or to cancel it altogether when you open a new account?
Equifax response: The best advice is to get the credit that you need and use it wisely.
Depending on the scoring product, an inactive account will not factor into the score after certain periods of inactivity, but may still impact debt service equations. Each file is different, but the consumer should be accessing and using credit products based on actual need. A long-standing credit product in use by the consumer (and in good standing) over a significant period of time will have a positive impact on a score.
4. What should “points hackers” (consumers who open and closeВ multiple credit cards in order to take advantage of bonus points and rewards) be aware of when it comes to their credit rating and credit score?
Equifax response:В Consumers who open/close multiple products on a regular basis will see a higher impact at the inquiry component of a score (due to regular and ongoing new inquiry traffic) and may also be impacting debt service equations overall.
Scores look at longevity of product use: the longer the product is in use, the more positive the score impact. Lenders look at all existing open products as part of their risk assessment, which could actually impact a consumerвЂ™s ability to obtain the credit that they truly need as opposed to obtaining credit for the sole purpose of obtaining rewards/points.
One of my Twitter followers liked a recentВ article on cash back credit card rankings and said heвЂ™d love to switch to the Scotia Momentum Visa Infinite but he didnвЂ™t think it was a good idea because heвЂ™d be applying for a mortgage in a few months. He was worried about the impact that opening a new credit card account would have on his credit score.
Countless threads on the Personal Finance Canada subredditВ obsess overВ credit scores, credit utilization, and the impact of having multiple credit card accounts and access to higher spending limits.
But now youвЂ™ve heard it right from Equifax вЂ“ applying for credit cards, even opening multiple accounts within a short period of time, has minimal impact on your credit score if you manage your credit responsibly.
Strategy for Applying for Multiple Credit Cards
Jumping into the game and choosing your first travel credit card can be a bit of an overwhelming experience, especially if the world of credit cards is new to you and you’re eventually planning on applying for several cards. With certain banks now clamping down on applications, the need to make wise decisions when structuring your credit card applications is all the more necessary. This article will look into a good strategy for applying for multiple credit cards.
Some people recommend applying for a handful of cards at once (“app-o-rama”) and others recommend applying for just one or two cards every month. I suggest you taking the more methodical approach and apply for one to two credit cards per month.
Specifically, as you will see below, I suggest when starting out you wait 60 days in between Chase apps but consider applying for two cards at once since they combine hard pulls.
Chase has a 30 day rule where you’ll almost always get denied if you apply for more than two cards within 30 days, so you pretty much have to wait 30 days. And when you factor in the 5/24 Rule (discussed below), it makes sense to just stick to Chase in the beginning and give yourself sufficient time to get approved.
Look into Chase cards and Ultimate Rewards first
Right now Chase has a rule called the “5/24 Rule” which means that you can’t be approved for their house-branded cards (Sapphire Preferred®, Chase Freedom, and Chase Slate) if you have opened 5 or more accounts in the previous 24 months. Also, there are rumors that this rule will be enforced across ALL Chase cards even co-branded cards like the United MileagePlus ® Explorer card and their business cards. The jury is still out on when and if this will come into effect, but it’s definitely something to consider when applying for cards.
Thus, you will probably best be served by applying for Chase cards first unless you are certain that you will not be getting value from their co-branded cards or house cards that earn Ultimate Rewards. And you should be 100% certain. For example, if you’re not familiar with airline alliances and have ruled out Ultimate Rewards simply because you didn’t see an airline you’re interested in on their travel partner list, you need to go back and do some more homework. (A lot more homework, I’d say.)
So once you decide to pursue Chase, you need to know which cards to go after first. Below you will see my recommended options for your applications with Chase. The slash (“/”) indicates an option for your first application and the hyphen (“-“) indicates an option for your second application that you should probably do at the same time as the first.
Note: I’ve recommended the option of applying for a house-branded card along with a co-branded card for Chase since some are often denied when they apply for two house cards at the same time (although you definitely can get 2 house cards at once).
My order for pursuing cards would depend on my prior credit history.
Previous history with Chase or good credit?
- Sapphire Preferred/Reserve – Co-branded (subject to 5/24)
- Ink Plus/ Ink Cash/ Freedom/ Freedom Unlimited – Co-branded (subject to 5/24)
- Ink Plus/ Ink Cash/ Freedom/ Freedom Unlimited – Co-branded
No history with Chase or little credit history?
- Freedom/ Freedom Unlimited – maybe Co-branded (subject to 5/24)
- Sapphire Preferred – maybe Co-branded (subject to 5/24)
- Ink Plus / Ink Cash / Freedom /Freedom Unlimited – Co-branded
You may have a very tough time getting approved from Chase without any credit history. Consider opening up a secured credit card, student credit card, or store credit card for 6 months or longer. Then start back at the beginning assuming you have a respectable credit score (typically something near 700)
Of course, if you already have one or more of these Chase cards you can always jump to the next card.
Citi or any other non-Amex bank
After you hit Chase, I’d move to Citi or a bank like Barclay’s.
The reason is that once you opt-in to offers and you start picking up credit cards, you’re more likely to get credit card offers in the mail. One interesting thing about Amex is they tend to send more targeted offers to those people don’t currently hold American Express cards. Thus, I’d hold off on Amex applications and just try my luck to see what kind of targeted offer I might get from them.
If I had to pick one bank to go for after Chase it would be Citi, though.
It’s a little tricky to pick a Citi card right now because some of the best offers for Citi like the 50,000 Premier have disappeared. That would normally be my first pick but with no bonus currently out, I’d probably go for a co-branded card or the Citi Prestige. Since Citi has the 8/65 Rule, you’ll have to wait 8 days to apply for your second Citi card and then 65 days from the date of your first application, so you can’t apply for two Citi cards at once.
Your choices might look like:
- Citi Premier/Prestige (I’d wait for at least 50K offer on the Premier, however)
- Co-branded card like Platinum Select (if 50K offer)/ Hilton HHonors
It’s always a good idea to periodically examine the pace at which you’re applying for new credit cards.
So up to this point your applications may have looked something like this:
- 1/01/16 – Sapphire and United Explorer Card
- 3/01/16 – Chase Freedom Unlimited and IHG Card
- 5/05/16 – Citi Premier (50K offer)
- 5/14/16 – Citi AAdvantage Platinum Select
So you’d have six cards within about 5 1/2 months. That’s a somewhat conservative approach compared to some people to be honest, but I think it gives you a safe route with dealing with Chase and Citi, while holding out on American Express to come with some better offers.
Not getting overwhelmed with spend requirements
After getting your second Citi card, you might think you’ll be ready to hit up any of the banks but you always have to remember that you’ll need to to be hitting your minimum spend requirements. Although the spend requirements may differ slightly depending on whether or not you’re applying with targeted offers, they would generally look like this:
- 1/01/16 – Sapphire ($4,000) and United Explorer Card ($1,000)
- 3/01/16 – Chase Freedom Unlimited ($500) and IHG Card ($2,000)
- 5/05/16 – Citi Premier ($3,000)
- 5/14/16 – Citi AAdvantage Platinum Select ($1,000)
That would force you to spend about $11,000 in those 5 1/2 months. That may or not may not be possible or an issue for you so but you always have to remember to be realistic about hitting those spend requirements.
Planning your next application
At this point, assuming hitting the minimum spend requirements would not be an issue for you, you’d have to make the choice if you want to jump into Amex or hold off for a potential targeted offer. To be honest, I don’t think I would hold off for Amex targeted offers more than 6 months — there are plenty of worthwhile American Express offers to take advantage of without getting a targeted offer.
If I were at this point, I might consider applying for two more Chase cards if I really wanted any of them because there’s no telling when the 5/24 Rule would potentially kick in. If I didn’t want to apply for any Chase cards, I’d probably go with Amex but once you’ve hit Chase to avoid the 5/24 Rule hurting you and waited out a little for Amex, there’s no real “bad decision” with respect to choosing a bank to apply with (so long as you’re going for quality cards, of course).
Amex has pretty lax standards for getting charge cards. You should read up on American Express Application Rules if you’re not familiar with them. Since Amex combines hard pulls, I would apply for two cards. You might go for the following two cards, for example.
- Premier Rewards Gold Card/Amex Everyday Preferred – SPG
You could apply for three or more cards but you’d be increasing your odds of a financial review which is never a good thing (although it’s not the end of the world by any means).
So now your applications may have looked something like this:
- 1/01/16 – Sapphire and United Explorer Card
- 3/01/16 – Chase Freedom Unlimited and IHG Card
- 5/05/16 – Citi Premier (50K offer)
- 5/14/16 – Citi AAdvantage Platinum Select
- 6/14/16 – Premier Rewards Gold Card / Amex SPG
Of course, your spending requirements would now be higher so you’d have to keep tabs on them. In this case, the two Amex cards could add on anywhere from $2,000 to $4,000 to the $11,000 you would’ve already met.
You’d now be at 8 cards in 6.5 months which is pretty reasonable (although it might shock 99% of the population to hear anyone describe that as “reasonable”). But you’re not “anyone,” remember?
Future plans and rotating banks
From that point you can stick with a steady 1 to 2 cards per month and be just fine. So long as you’re paying off your balances (or at least keeping them down) your credit score should be going up over time and you’ll be able to cruise along picking up cards you want here and there.
One last thing, I think it’s always a good idea to rotate the banks over a series of months. For example, once you’ve hit Chase, Citi, and then Amex, maybe then you hit up Barclays or Bank of America and then start the cycle all over again with Chase. Banks get a little weary when they see you’ve been pursuing a lot of credit recently, but they get even more weary when all that recent credit has come their own bank.
You’ll be surprised how sustainable this 1 to 2 cards per month application strategy actually is over the course of a year and then even beyond. And one great plus about this strategy is that it leaves open the possibility of jumping on special unexpected offers when they come around. If you’re hitting 4 or 5 cards at once and then a great offers appears, you may be denied from that offer due to the high number of very recent inquiries.
This strategy is just my personal recommendation. You can still be successful with your applications by varying from this and going the app-o-rama route, but I am just telling you what has worked for myself and many others around me. A steady pace can definitely win the race when it comes to credit card applications.